Measurement of Economic Growth

Economic Growth is the positive change in the indicators of economy. It refers to the increment in amount of goods and services produced by an economy. Thus, it means an increase in real national income / national output. It refers to an increase over time in a country’s real output of goods and services (GNP) or real output per capita income and is single dimensional in nature as it only focuses on income of the people. Earlier, economic growth was only measured in terms of Gross Domestic Product (GDP). At present, it is measured in terms of GDP, Gross National Income (GNI) and Per Capita Income. Economic Growth is the precursor and prerequisite for economic development.

Indicators of economic growth are GDP, GNI and per capita income. It relates a gradual increase in one of the components of GDP; consumption, government spending, investment or net exports. It is also considered as a traditional measure of development which indicates the quantitative rise of economy. The economic growth only looks at the quantitative aspect. It brings quantitative changes in the economy and is concerned with increase in economy’s output focusing on production of goods and services. It is more relevant metric for assessing progress in developed countries. It is relatively narrow concept as compared to economic development. It is for short term/short period. It is a material/physical concept and is measured in certain time frame/period.

Thus Economic growth does not take into account elements of morality. Undocumented economic activity from things such as black markets is not factored into growth. While economic development does not actively work to thwart the informal economy, the activities implemented by development (including development of quality of life and decreasing figures of inequality) tend to increase the formal economy enough so that the informal economy can lessen its influence.

Thus The work performed by economic development will lead to many qualitative changes in an economy, which will in time have an impact on the overall output. Positive change in economic development can lead to economic growth, which leads to a direct relationship between the two. Economic growth can be viewed as an overarching goal of economic development, though development has a number of specific stepping stones to get to first.