What Is Economic Growth and Development? - Definition, Theories & Indicators

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  • 0:02 Economic Growth
  • 0:52 Example of Economic Growth
  • 2:17 Economic Development
  • 3:18 Example of Economic…
  • 4:23 U.S. Foreign Aid
  • 5:50 Lesson Summary
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Lesson Transcript
Instructor: Ashley Dugger

Ashley has a JD degree and is an attorney. She has taught and written various law courses.

A country's economic health can usually be measured by looking at that country's economic growth and development. This lesson defines and explains economic growth and economic development, including the role of U.S. foreign aid.

Economic Growth

A country's general economic health can be measured by looking at that country's economic growth and development. Let's take a separate look at what indicators comprise economic growth versus economic development.

Let's first examine economic growth. A country's economic growth is usually indicated by an increase in that country's gross domestic product, or GDP. Generally speaking, gross domestic product is an economic model that reflects the value of a country's output. In other words, a country's GDP is the total monetary value of the goods and services produced by that country over a specific period of time.

Example of Economic Growth

For example, let's say that a special berry grows naturally only in the country of Utopia. Natives to Utopia have used this berry for many years, but recently, a wealthy German traveler discovered the berry and brought samples back to Germany. His German friends also loved the berry, so the traveler funded a large berry exporting business in Utopia. The new berry exporting business hired hundreds of Utopians to farm, harvest, wash, box and ship the berries to grocers in Germany.

In one calendar year, the berry exporting business added over one million dollars to Utopia's GDP because that's the total value of the goods and services produced by the new berry exporting business. Since Utopia's GDP increased, this means that Utopia experienced economic growth.

In the United States, our periods of large economic growth are mostly associated with new technology. The Industrial Revolution and the development of the Internet are two examples. When new developments bring an increase in output capacity, economic growth usually follows.

Economic Development

Now let's take a look at economic development. A country's economic development is usually indicated by an increase in citizens' quality of life. 'Quality of life' is often measured using the Human Development Index, which is an economic model that considers intrinsic personal factors not considered in economic growth, such as literacy rates, life expectancy and poverty rates.

While economic growth often leads to economic development, it's important to note that a country's GDP doesn't include intrinsic development factors, such as leisure time, environmental quality or freedom from oppression. Using the Human Development Index, factors like literacy rates and life expectancy generally imply a higher per capita income and therefore indicate economic development.

Example of Economic Development

For example, before the berry exporting business, most Utopians lived in small villages many miles from one another. Few Utopians had access to schools, fresh water or healthcare. Utopian men worked long hours attempting to farm land that was naturally unsuitable for most crops, just to feed their immediate families.

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