A very good question. I think one has to carefully define development. Economic growth is a subset of development. Development is broad based and for growth to support economic development, it has to be inclusive. I get puzzled by the term 'economics of development' and 'development economics'. Are these two different?There are various socio-economic and socio-political, geographical and climatic dimensions that influence development. Hope to get more insights on this topic.

Thanks, Ronald.

Economic Development is important because of jobs, salaries and wages increaseses. In somes countries government support economic growth with policy monetary.

In my last coment ¨ts wrong policy monetary. I wanted to say fiscal policy.

Most indicators of human development are highly correlated with GDP, i.e. with economic development. Life expectancy is positively correlated with GDP, child mortality is negatively correlated with GDP, happiness is positively correlated GDP, education is positively correlated GDP, etc. The World Bank's Human Development Index itself iself includes GDP as an element. Thus, development and GDP are very closely related.

The really challenging question is not whether GDP is important but if higher growth causes advances in these other variables or whether, for example, education or advances in health cause growth of GDP.

I agree with you David, education is important to increase GDP. Besides to push the economy is necesary structural reforms: labor, investment, telecommunications, banking System.

economic growth and economic development are two terms used usually simultaneously but both have different aspects as i see above the development is much more broader term than growth. Growth implies increase in national income and per capita income whereas development means over all increase in every aspect or every field. We can see an economies improvement through development.

Growth is no doubt a necessary term for development without growth development cannot be assumed. As quality of life and other aspects are related to the income level in the economy.

the most important answer is how to growth without inflation. Because many economists advise low inflation rates.

Georges thanks for the answer, Iam interested in this topic because Mexico needs to growth, that´s why in last year Mexican Congress voted labor reform. This year education and telecommunications reforms. I suposse these structural changes are necessary to growth first and after to reach development. I understand this process is not in a short time, but the key is begin.

Competition is another important variable to increase Gross Domestic Product. Regulatory competition policies are important to control monopolies and oligopolies.

What is economic growth? Arthur Lewis defined it as growth of output per head. To induce this, it is necessary to realize various changes. Productivity growth is one of them. Structural and institutional change is another. Amelioration of infrastructures helps to accelerate economic growth through the reduction of  transportation costs and time.

The deleted post (posted May 8, 2013) is right when he or she says that

• The main difference is that development includes a number of structural changes (social, institutional, economic and cultural). 

However, it is a bit misleading to interpret this that growth does not  include number of structural changes. Developed countries necessitate structural changes if they wand a sustained growth. As an example,  we may cite Robert Reich's opinion. He hints that American (as well as other most developed countries) are now suffering low growth or stagnation (low growth of the real economy compared to that of the financial economy), because both wealth and income inequalities become too high. Reich expresses this thesis for example in the movie Inequality for All.

The field of economics called growth theory was confined to too narrow a problem which can be treated by mathematical formula. In some occasions, such examination is necessary but to think that all aspects of economic growth can be treated by such a method is a gross error. Growth theory must learn much from development economics.

Another problem of growth theory is that it contains many theoretical flaws. It is necessary to renovate it. We need a new theory starting from the price theory. I have argued these points in detail in the following paper in a guise of comments on Kurz and Salvadori's two survey papers on growth theory:

Growth Theory As It Ought to Be: Comments on Kurz and Salvadori's Two Survey Papers on Old and New Growth Theory

https://www.researchgate.net/publication/311439320_Growth_Theory_As_It_Ought_to_Be_Comments_on_Kurz_and_Salvadori%27s_Two_Survey_Papers_on_Old_and_New_Growth_Theory

Working Paper Growth Theory As It Ought to Be: Comments on Kurz and Salvad...

Economic growth, its definition is the following: an increase in the gross domestic product in a specific period (a year), is quantitative.

Economic Development:   its measure by  an increase in citizens' quality of life. Human Development Index,  indicators are: literacy rates, life expectancy and poverty rates, health, education, is qualitative.

Economic growth is a condition to economic development.

Economic growth is a condition to reach Economic development

 Martha's distinction between growth and development is most popular one. But we have to doubt this popular understanding. As I have argue above, any growth indeed includes development but this fact is not acknowledged because of  the long tradition that  economic growth is a proportional extension of all real variables. However, the proportional growth stands for the constant consumption per person or per family. Any national economy can grow as fast as population.

If Mexico or any other other countries want to increase faster than the population growth rate, it is inevitable that such an economy comprises rise of labor productivity, rise of real wage rate, and the increase of family consumption. This change inevitably included progress of production techniques. To recognize this is important when you consider growth strategy. 

It was missing, when a country has an important economic growth, it doesn`t  mean that exist economic development

Is it a reasonable argument?

Hello Yoshinori:

As you know:

Economic growth. A country's economic growth is usually indicated by an increase in that country's gross domestic product, or GDP.  The gross domestic product is an economic model that reflects the value of a country's output.  GDP is the total monetary value of the goods and services produced by that country over a specific period of time (a year).

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, 

"The Human Development Index (HDI) was developed by the United Nations as a metric to assess the social and economic development levels of countries. Four principal areas of examination are used to rank countries: mean years of schooling, expected years of schooling, life expectancy at birth and gross national income per capita. This index makes it possible to follow changes in development levels over time and to compare the development levels of different countries".

Human Development Indicators, Mexico, 2014:

Human Development Index: Index 0.762

Rank

77

The Mexican economy  decelerated with annual GDP growth slowing to 2.3 percent in 2016, down from 2.6 percent in 2015. 

Martha,

you can use concepts of official statistics as your first reference of your argument. But you should know that it is not the final answer in academic or scientific arguments. Official concepts are derived from the scientific arguments, if we put off the question of availability of  data.

I have cited Arthur Lewis's definition. It appears in The Theory of Economic Growth. It was first published in 1955, but is still available as a paperback edition from Routledge.

Lewis is a representative economist among the first generation of development economics and the book contains many arguments which were forgotten or wiped out after the neoclassical  turn of development economics. 

https://www.intelligenteconomist.com/economic-growth-and-development/

https://www.diffen.com/difference/Economic_Development_vs_Economic_Growth

https://study.com/academy/lesson/what-is-economic-growth-and-development-definition-theories-indicators.html

https://keydifferences.com/difference-between-economic-growth-and-economic-development.html

Dear Yoshinori, I know:

" W. Arthur Lewis' best-known contribution to development economics . His article, "Development with Unlimited Supplies of Labour" (1954), contributed to the establishment of development economics as a specialized field of study. It addressed the mechanisms of transferring surplus labour from traditional activity to a modern capitalist sector under conditions of unlimited supply of labour".

Dear Martha,

"Unlimited supply of labor" is the most famous paper and cited most often. However, you should know that it is a research paper which focuses on a specific topic. Lewis's book The Theory of Economic Growth is a synthetic analysis of economic development that Lewis gathered all knowledge and experience on. You can know much complex aspect of economic development. Of course, it is a book written more than 60 years ago. We learned may other things since then. However Lewis's book remains to be a classic in economic development theory and well deserves reading now.

Dear Yoshinori:

I have read Arthur Lewis' papers since I was in the University:

" Fifty years after its publication, I set out to read his Theory of Economic Growth without making any concession to its age. It is this that he describes in his Nobel autobiography as “my so-called classic book of 1955” (Lewis 1979), that is also regarded as a major contributor to the development of development economics as a sub-discipline (Ranis 2004). I wanted to be informed about the issues and problems of economic growth from a now perspective by this fifty year old book "

Dear Martha,

Is the text in the quotation cite from your paper?

If you want to be informed about the issues and problems of economic growth from a present perspective by this fifty year old book, one of my suggestions is the following working paper of mine:

Growth Theory As It Ought to Be: Comments on Kurz and Salvadori's Two Survey Papers on Old and New Growth Theory

(See my post one year ago.)

followings are an interesting polemique concerning development and evolutionary economics:

http://web.mit.edu/krugman/www/dishpan.html

http://web.mit.edu/krugman/www/evolute.html

http://evonomics.com/what-paul-krugman-needs-to-know-about-evolutionary-economics/

Dear Yoshinori:

Thanks the information.

One concept is clear,, that to get development, economies need to growth

http://www.ugb.ro/etc/etc2012no1/09fa.pdf

https://mpra.ub.uni-muenchen.de/37966/1/The_Role_of_Population_on_Economic_Growth_and_Development_Evidence_from_Developing_Countries.pdf

http://www.unescapsdd.org/files/documents/PUB_APPJ-Vol-1-No-2.pdf

Now a days many economists argued that a high economic growth implies a depletion of natural resources and worsening of environmental pollution problems. I think China is an example.

There is consensus on the need for a more economic growth to generate development. However, is not sufficient. When the rate of economic growth is high, is suposse to reach development measured by Human Development Index, but in many cases the results are negative.

" In Rostow’s phraseology economic growth begins somewhere between the stage of take-off and the stage of maturity."

Dear Yoshinori:

I read the article The Fall and Rise of Development Economics, in my personal point of view, it doesn`t help to understand the relationship between economic growth and economic developtment.

Thank you for reading Krugman's paper: The Fall and Rise of Development Economics. It is Krugman's estimate on the high theory of development economics. He preached to evolutionary economists the model thinking with the reason that it is more productive. But basic reasons of his arguments are criticized by an evolutionary scientist David Sloan Wilson.

I only want to say that in economics it is dangerous simply to believe what are thought to be true and established. Distinction between growth and development is one of them. It is not wise to think that you can separate growth and development conceptually.

I am finding it difficult to establish the trend in the debate between Yoshinori and Martha, who set the question herself, considering the spirit of the question.

But in my simple best understanding, Martha seek to argue that, growth economic theory is a subset to development economics, and wondering whether Yoshinori disagree and if so why? I am suffering from the lack of clarity in his submission. Lewis works as best known, are general accepted in the strand of development economics, equally as Paul Kraugman who will not hesitate to admit that most of his works fall within development economics than growth economic theory.

Economic growth is more of quantitative in analytics, and it theorization depends much on model framework unlike development economics and believe will be better understood from the works of M. Solow and P. Romer: May be below reference will be helpful to understand the theoritical structure of Growth theory in economics, since i could see both of you are well vexed in development economics.

REFERENCE

1. Romer, P. M (1986) Increasing returns and long-run growth; Journal of Political Economy, October.

2. Solow, R. M. (1957) A contribution to the theory of economic growth; Quarterly Journal of Economics, February.

Dear Emmanuel

the answer to your perplexity is given in my post one year ago. Please read

Growth Theory As It Ought to Be

https://www.researchgate.net/publication/311439320_Growth_Theory_As_It_Ought_to_Be_Comments_on_Kurz_and_Salvadori's_Two_Survey_Papers_on_Old_and_New_Growth_Theory

I am against Solow and Romer. People refer them as Old and New Growth Theories, but in my view they are on the same track. Economic growth is always disproportional process and their formulation (one kind of product) cannot analyze the real feature of economic growth.

Hello Emmanuel:

"Martha seek to argue that, growth economic theory is a subset to development economics", I want to point out that

Economic growth is necessary because it allows produce more goods and services and also helps because is a first condition to get life standards ( Economic development).

According to Romer:

Human history teaches us, however, that economic growth springs from better recipes, not just from more cooking. New recipes generally produce fewer unpleasant side effects and generate more economic value per unit of raw material.

This is a good explanation, because many countries have had increase in their economies measure by Gross Domestic Product, but not in their standars of life.

Dear Yoshinori:

"Economic growth is always disproportional process and their formulation (one kind of product) cannot analyze the real feature of economic growth." is not clear, because economic growth is measure by Gross domestic product.

Dear Martha,

the GDP is the sum of value added in many industries. It is only an aggregated number. There are enormous number of different products and services beneath the GDP. You should see what is happening under that number.

Yoshinori

Dear Yoshinori

I am analyzing the case of the Mexican economy in the last 10 years, I hope to finish my paper in 2 months. It is interesting because although the Mexican economy has not registered very high rates of growth (2% per year), it has not translated into better living standards.

Dear Martha,

if you have to finish your paper in two months, you have no time to reflect about and re-think the very basic question. Let us stop this argument for the moment. But please remind that there are more questions you should ask.

Before you will start writing the next papers, please dig down your question (low rate of economic growth of Mexican economy) to the deeper layer of the apparent fact (2% per year). Two percents is only a surface.

You may ask more structural problems of Mexican economy. Important factors may also reside outside of Mexico. You can ask, for example, why Mexico was not very successful in upgrading it in the rapidly expanding Global Value Chains (GVCs). GVCs has changed the fundamental strategy for economic growth (and development) of almost all developing countries and emerging markets.

Dear Yoshinori:

thanks for your comments and suggestions,

Insightful comments

Following Yoshinori’s anwer, I may add that there are two very different questions to be asked when discussing Mexico’s economic development performance.

One is the overall macroeconomic discussion considering Mexico as well represented by the national accounts averages acroos all States of this federal republic: fiscal and monetary policies, public investment, institutions and reforms. Here, there has been a long debate between the Old School of Mexian economists (heterodox Statist) and the new wave of market oriented economists. This debate is -in my opinion- fruitless because it is evely loaded on the political side: economics is only used as an argument against the other side.

It is also often fought from a territorial basis: scholars from Northern universities (e.g, Monterrey) where industrialisation is most advanced will tend to be pro-market and pro trade. Economists from the capital city (e.g, UNAM University) will tend to be pro-State and protectionist. At least there is some micro-economic rationality in this behaviour considering that graduates from Monterrey will probably work in the private sector and graduates from UNAM will be bureaucrats. So each camp tries to defend its source of income.

But there is another structural challenge that is perhaps more relevant and less discussed (at least there is less information available to foreigners): the structural and income gaps between Northern and Southern states in Mexico is huge and increasing. While Northern export-oriented industry is firmly inserted in the 21st century, Southern states like Chiapas still live in the 19th century. Mexico City is in a different league as it benefits from both the modern global economy (especially financial sector and services) and from concentrating most government offices as in colonial times.

If all of Mexixo had the same income as the industrial North, the macroeconomic average data would look very different. Closing the gap between North and South by helping poorest states to take over some activities that are no more attractive in the Norhern states would dramtically boost the overall GDP growth without implying deep and risky changes in macroeconomic policy.

China implemented such a policy when it decided to adopt the export oriented policy that industrialised its coastal states. Moving exportoriented industries further west involved large investment in infrastructure and a policy shift away from small and medium state enterprise to open space for new investment.

But this discussion seems absent from today’s debate in Mexico, as if there wasn’t such a structural divide between rich Northern states and poor South.

Dear Olorunfumi:

Do you have some suggestions?

You have an excelent day

Dear Hubert.

First, thank you for your comments.

I want to point out that, protectionist policies are things of the past, the discussion now between Mexican economists focuses on economic growth, since the goal is to generate more jobs. Globalization is a reality.

You're rigth, There is a gap between Northern and Southern states in Mexico. In 2017, for example Baja California Sur (Its a resort Los Cabos) recorded the highest economic growth of any Mexican state, according to the National Institute of Geography and Statistics (Inegi), grew by 12.44% last year, over five times more than the 2.33% rate registered in 2016 and six times better than the national average of 2% growth.

Puebla's economy experienced the second highest 2017 growth, accelerating by 6.84%. Morelos, Guanajuato and the state of Mexico also recorded growth rates more than double the national average, with 4.78%, 4.58% and 4.22% respectively. These States are located around Mexico City.

 In 2017, Southern states in Mexico: Campeche and Tabasco, were affected by the downturn in activity in the petroleum sector and recorded negative growth.

To achieve economic development it is important that there be economic growth. However, a key factor to consider is the distribution of income "The existence of a close relationship between distribution and growth has been recognized, and a particular class has been investigated by several Cambridge economists, in particular Kaldor, Joan Robinson and Pasinetti. " Amartya Sen

An important factor to consider is that the benefits from economic growth not trickle down to the majority of the population.

The “trickle down “ issue is central to the discussion, indeed. And it is not natural: development, understood as technological progress, breaks the status quo and creates winners and losers. Compensating losers by increasing taxes on winners (the usual neoclassical and socialist approaches) does not work if winners have voice (they can influence policies through their vote) or have an exit option (the general case when economies are globalised and highly skilled workers are mobile). I tend to beleive that the best option to foster trickle down is redistribution through public spending (education, health and housing) rather than through high and strongly progressive income taxes, Picketty-style.

Thanks Hubert for your comments:

Neo-Classical model of Solow/Swan

The neo-classical theory of economic growth suggests that increasing capital or labour leads to diminishing returns. An increase in proportion of Gross Domestic Product that is invested is limited as higher proportion of investment leads to diminishing returns and convergence on the steady state of growth. Technological progress which increases productivity of capital/labour.

Dear Martha;

Yes, as long as the production function is well-behaved (diminishing returns). There may be cases where we have increasing returns to scale, but I guess (I am not a specialist) that these cases are restricted to particular industries (e.g., transport equipment) and lead to monopolistic competition where the level of steady-state output is defined outside the Solow model. In this case, there is a monopolistic rent which may be shared between capital and labour. But such situations may not hold at macro-level, and macro is what matters for most development economists.

In all cases, these models do not say much about the distribution of value added. Additional hypothesis on the Solow model are needed to reach the neo-classic conclusion that labour and capital are remunerated according to their marginal productivity. Post-Keynesian economists in the 60s preferred to refer to some kind of class-struggle to get a bigger share of value-added (pugna redistributiva, in Spanish) leading to inflation.

On a very personal basis, I am surprised that most economists working on redistribution forget the demographic factor: with a large and increasing non-active population of retirees, more and more value-added has to be redirected to pension funds, either through taxes on labour and capital ("pay as you go" pension systems) or through higher distributed profit (capitalised funds, leading to pension funds being the largest owners of equities in most developed economies). In both cases, the disposable income going to labour has to go down as a share of GDP (as it is the case in most countries) in order to provide an income for the retirees.

Martha,

you are still thinking in terms of Solow/Swan growth model. You should know how it is undermined and fraudulent. I have warned you in my previous posts. (See Section 6 Smooth production functions in paper On Growth Theory As It Ought to Be.)

The reasons go over various levels of the theory. Most important one is this: aggregate production functions have no theoretical basis. See

The history of criticism against production function is quite long. If you read the item "Production function" in Wikipedia, you will see the capital controversy in 1960's. It was concerned on the plausibility of capital concept as a scalar quantity. But much more important problem is in the notion of production function itself.

(1) is the summary of the history on this theme. The authors have contributed much on the problems /difficulty of aggregation of production functions. The history goes back to (2). Anwar Shaikh showed that arbitrary generated data like letters Humbug gives a good fit to a production function. Herbert A. Simon, the Noble prize in economics 1979, pointed that Cobb-Douglas production function is just another expression of accounting identity and cannot be base of any causal reasoning. The very fact that a production function gives a good fitness is undermined,

When you think in terms of aggregate production function, your are only observing three variables: GDP, capital, and labor. This is a sum of each firm level identity:

Value added = Operating surplus + Wages and salaries (1)

which is obtained by subtracting Intermediate Inputs from the equality Total Product = Total Payment. All what you can say from production function is limited to what you can say from the identity (1).

The production function is written like

Y = f( L, C) . (2)

It is always assumed that this function is differentiable. The form of the function (2) means that you can choose any combinations of L and C, but this is simply false. In each industry, the labor and material inputs are determined and you cannot change the input ratio as long as the demand composition is determined.

The neoclassical theory of distribution is derived by differentiating (2) with regards to L and C:

w = ∂f/∂w　　　and r = ∂f/∂C. (3)

If the production function f is homogeneous of degree 1, we get an identity

Y = (∂f/∂w) f_L(L, C) + (∂f/∂C) f_C (L, C) = w L + r C (4)

by the Leibnitz formula of composite functions. But this is a fraud fact, because you cannot get a product like f(L+ΔL, C + ΔC ) as you like. Marginal theory of distribution is simply a fraud.

Martha talks about substitution and diminishing returns. It is diminishing returns in substitution. There is no such thing in the real world. There is a possibility of choice of product but substitution in the economy as a whole does not occur. This is the most important message of the minimal price theory. (See Section 6 of my paper.)

All these "theories" are related with each other but have no more meaning than the accounting identity than (1). Production function is a fake that is produced by neoclassical economics. As long as you continue to think in this framework, you never arrives at the real problem of economic growth including that of Mexican economy.

It is really an interesting question. These two economic concepts are different, but have positive correlation in many nations.

Economic growth is quantitative variable, while economic development is quantitative and qualitative one. It can be said that economic growth is one-dimentional economic concept, economic development is a multi- dimentional economic concept.

A high evonomic growth is not a safe guarantee for reaching a high level of economic development, whereas a high economic development indexes can be a guarantee for a nation to go to reach to a proper economic growth rate.

Interesting.

Dear Hubert:

Solow-Swan Model.attempts to explain long-run economic growth by looking at capital accumulation, labor or population growth, and increases in productivity( technological progress). However there other many factors for example: corruption has an important effect in economic growth, few economists took into account, one of them R Dzhumashev explain that the size of public spending and economic development affect the relationship between bureaucratic corruption and economic growth. Corruption does not allow the benefits of economic growth to reach more people

Dear Yoshinori:

Iam thinking in terms why economic growth not trickle down in most people. Solow-Swan in only a model, but the variables are important to reach it and and because economic growth leads to a concentration of income.

Dear Ehsan:

The important thing to identify the fundamental factor of why economic growth does not benefit the majority of the population

Dear Martha. On corruption and economic growth, and if my memory isn’t too bad, there were lots of research in the 1990s when institutional economics returned into the spotlight (after North Nobel price). But it is difficult at macroeconomic level to desintangle the negative effect of corruption on growth from overall bad institutional governance and government failures.

It may even be a way of getting through government dailures. In many countries up to recently, black markets (possible only if there is corruption) were the only way to get specific products, some of them basic as food, medice or gazoline. So, corruption was ‘oiling’ a system that would have been even more disfunctiol without it.

It is even more difficult to pass a judgment if your interest is on distributive effects: I have seen recently a paper on trade facilitation stating that small exporting firms would lose more if corruption at border is better controlled. The main idea being that getting through the complex bureaucraty required a strong legal department that most small firms could not afford: bribing the custums officers was their only way to go through the paper work.

Do not interpret my answer as a defense of petty corruption, as I am convinced that it cannot be a substitute for functional and effective bureaucracies.

Cheers

.Hubert

It is also difficult to measure its impact on economic growth.

Martha,

do you want to be an armchair economist who thinks that what is easily gotten is always the good way to uncover truth?

Dear All,

May we go back to Shiozawa's statement, 20 days ago: "There is a possibility of choice of product but substitution in the economy as a whole does not occur."

I agree at micro-level, up to a point. My opinion (I have no proof besides a few examples) is that products resulting from very different mix of labour and technology may be classified by statisticians as similar products, while in facts they are very different varieties that are not substitute. For example, I am the proud owner of a classic motorbike made by hand in India on the model of an English bike from the 1960s. It is beautiful, economical, easy to maintain but slow and not designed to run on highways. If this Indian company wants to upgrade and produce modern motorbike like the Japanese Honda or Yamaha, it needs to use more robots and numeric command machinery, to obtained the much higher quality in engineering that high speed motorbikes demand.

But meanwhile, Indian and Japanese motorbikes are not substitutes and cater for very different market segments.

Returning to Marta's initial issue, this is seriously limiting the possibility for developing countries to use their abundant labour to compete for the high value-added market: for high level of industrial standards (such as those in modern transport equipment, or optical and electronic machinery ), there is very limited capital-labour substitution possible.

Protecting your domestic market in order to be able to sell low quality products to the population and employ unskilled workers is not an option anymore (except in North Korea, but even this may change pretty soon).

So, what to do with abundant low-skilled manpower, besides developing a labour-intensive services economy? I do not know and, frankly, I am increasingly concerned for our children, because technology is now substituting medium to high skill labour, including in services. Is our future a Matrix future?

Best, H

Dear Hubert:

The situation that the generations are facing is worrisome because there are not enough jobs. likewise, as you point out, technological development limits the generation of jobs. Economic growth is a condition for creating jobs, but it is insufficient.

The world economic situation is complex, but it is not now, it is a long time ago, the big migrations are due to problems and lack of employment. Analyzing economic theories, since the 1930s (Keynes), there are no concrete proposals by economists. The solutions must be holistic.

Dear Yoshinori:

Thanks for your comments, help me so much.

Interesting

For a long time economic development was seen to be a consequence of economic growth. It was believed that economic development occurred when there was a high level of economic growth; poverty and unemployment decreased. The Mexican economy registered high growth rates some decades ago, which did not translate into better standards of living for the population.

The most important driver of economic growth is investment, The equation is GDP = C + I + G + NX. According to Cassey B. Mullingan, an economics professor at the University of Chicago. He is the author of “The Redistribution Recession: How Labor Market Distortions Contracted the Economy. investment is crucial for an economy to grow. Economic growth begins with investment and ends with consumer spending.

Martha,

investment is important in the meaning that it composes an indispensable part of economic growth. However, you should think what determines the total amount of investment. If it is the sum of each firms' investment, you should consider when and to what extent firms' mangers decide to invest.

Second point. If production techniques do not change (in other words, if labor productivity remains constant), there is no GDP growth per capita. This is not a real economic growth. You should reflect how and in what conditions production techniques progress and improve.

Hello Yoshinori:

You're right; but it is also very important to consider that public investment, such as the Mexican case, has a fundamental role. During 2017, public investment as a percentage of Gross Domestic Product was 2.6% the lowest level since 2006, private investment has a very close behavior with public investment, partly because the country's economy has reported slow growth of 2.2% per year in the last 20 years.

Aha! I was forgetting public investment. You are right. You can control it within a certain limit. Good public investment is important, because it is one of the main factors that contribute to the improvement of production techniques outside of factories.

Based on Keynesian view point, public investment is a government instrument which causes production to increase at a specific level.Public investment raises aggregate demand and has a multiplier effect on output.

According to Neo-classical Theory public investment increase because resources are shifted from private sector to public sector. This shifting cause negative effect on economic growth and create a crowding-out effect in both private and public sector which retard economic growth.

Are you for Keynes's arguments or against them?

By the neoclassical theory, they cannot analyze the effects of Keynesian policy. Their standard interpretation is general equilibrium with full employment. It is evident in such circumstances that public investment crowed out private investment or consumption. Keynes's policy should only be pursued when the aggregate demand is lacking to achieve full employment.

P.S. I added two phrases; (1) "in such circumstances," and (2) "only" in order to clarify my logic. They are emphasized by italics.

I am not sure we need to analyse public vs. private investment from the neo-classical vs Keynesians viewpoint. The practicioneers’ perspective is that private investment cannot be profitable without a certain level of public infrastructure.

Makes a lot of sense:why buying lorries to transport goods if there are no roads? But this is a reasonable ( engineering) perspective and unfortunately, economists are not reasonable engineers but basic political militants.

Some would say: the more roads built and civil servants recruited to monitor them, the more lorries the private sect or will buy. So, more public spending, more growth....

Other will say:the more taxes private sector has to pay for the civil servants, the less they will have in cash to buy lorries. For them: Taxes are bad for development. On a very personal basis, I have no clue: I don’t like lorries and I don’t like taxes...

Of course, there is no need to analyse public vs. private investment from the neo-classical vs Keynesians viewpoint. I only asked Martha Pantoja her intention to have written about neoclassical explanation. Considered situation and problem setting are different and it is useless to argue crowding out in the framework of neoclassical general equilibrium theory.

Dear Rossitsa

If the Link's topic affects economic growth in economic development; Given the recent experience in some countries, it is a fact that there is no linear relationship between economic growth measured through the Gross Domestic Product and Economic Development measured through the Human Development Index of the United Nations Organization. In this context it is how Theories about economic growth have been treated, as well as the variables that affect it.

Dear all;

On GDP vs. Development.

May the Statistician suggest a very basic answer: GDP is about flows; Economic Development (e.g., as measured through the UNDP's HD index) is a stock. These are two very different statistical animals.

The flow (GDP) registers pretty large year-to-year fluctuations and may look/behave as a random walk. The latter is a trend, with a positive drift in most countries (there are exceptions, such as Venezuela, but they are very few).

Basic statistics would suggest that (1) there is a positive correlation in the long term between (accumulated) GDP and Human Development Index; and (2) there is little or no correlation in the short-term because of different time series properties.

My two cents: Nothing philosophical, I am afraid, but I hope it helps understanding the differences between the two concepts.

Cheers,

Hubert

Dear Hubert:

Its important to point out that economic growth is necessary to get developtment economic, but not enough, because in the way there are many obstacles that prevent achieving the objective.

Dear Rossitsa:

"Another peculiarity is that economic development based on economic growth depends on the state's management".

In my personal opinion, economic development is not only a problem of management, because many variables and economic, political, social and natural factors are involved, as I mentioned before

I have the hypothesis that in many countries economic growth has produced a concentration of wealth, it is important to review the Gini Index

Dear Arben:

Thanks for your comments, welcome.

As you say: economic growth is measured by Gross Domestic Product (goods, services, in a period).

It´s a condition for economic development, but not necessarily enough, the question is why, there are many factors that affect it, the important is to identify which are.

The Human Development Index (HDI) was created to emphasize that people and their capabilities should be the ultimate criteria for assessing the development of a country, not economic growth alone . ( UNITED NATIONS DEVELOPMENT PROGRAMME )

Your suggestion to change the drafting of this question How important is economic growth to economic development to does the GDP growth affect the quality of life of the citizens?, is the same, because the quality of life of the citizens is called development.

Martha Pantoja

Have you successfully finished your paper?

Through a long discussion, and thank to Arben J Salihu

This post is to make a further clarification to what I wrote in first post two years ago. In that post, I have argued that growth and development cannot be simply separated as the common understanding presupposes on the difference between growth and development (See Martha's comment just after my first post).

I have found a good paper that explains the true nature of economic development and why we cannot simply separate growth and development:

Andreas Pyka and Pier-Paolo Saviotti (2008) Product variety, competition and economic growth. Journal of Evolutionary Economics 18(3):323-347

https://www.researchgate.net/publication/24058166_Product_variety_competition_and_economic_growth

This paper also answers Emmanuel Tweneboah Senzu and Ehsan Rasoulinezhad 's questions three months ago about difference between Martha and me. It explains amply why neoclassical growth theories like Solow-Swan type one as well as new growth theory are not a good model to consider economic growth and development. These models hide many important factors which generate economic growth. Economic growth should be always considered as economic development. Martha's argument is always reversed. She thinks to raise growth rate in order to achieve economic development. In my understanding, growth is a result of economic development, not vice versa. In other words, growth is a measurement at a special angle but growth angle obscures what is happening in economy.

Please also read my second comment on Liliana Meza González's question:

Why is trade reinforcing the labor effects of technological change in developing countries if labor is considered the abundant factor of production?

https://www.researchgate.net/post/Why_is_trade_reinforcing_the_labor_effects_of_technological_change_in_developing_countries_if_labor_is_considered_the_abundant_factor_of_production

There I argued why the concept of production function is flawed in relation to Heckscher-Ohlin-Samuelson theory in international trade. As for Solow-Swan type growth theory, I produced an independent post concerning it two months ago. Solow-Swan type growth theory and HOS theory are both based on this concept and involve the same theoretical problems. It is necessary to abandon to think within the framework of production function, if we really want to study economic development in depth.

Economic growth is a precondition for economic development but economic growth alone does not assures economic development. Economic development is more than economic growth.

Dear Rabindra Shakya,

the essence of my last post can be summarized in two points:

(1) Growth and development are inseparable entity in which growth is an aspect of development.

(2) To understand and consider economic growth, it is necessary to elucidate development process that lies under the surface of economic growth.

Your understanding and mine are very similar but may have delicate differences.

Yes, your are right. If the economic change is not reflected to effects which we can measure indices of quality of life, such economic changes have no meaning. However, I want to emphasize the importance of economic processes and their change, because they are the realities which underlie in the economic growth. Macroeconomics made a bad custom to ignore these changes and has a tendency to simply observe measured results.

I'm sorry, for the delay in my response

Its interesting your propose “I would say that unemployment, wages/salaries, rule of law, and the quality public infrastructure, among others tend to be equal or probably even better indicators pertinent to the quality of life.", but I only have a comment, as you know, all indicators must be measure, How do I measure rule of law? And quality of public infraestructure?

On the other hand, There are internal and external factors that impede economic growth and development. In my topic I am starting from the assumption that an economy has economic growth and the questioning is because there is no development. There are internal and external factors that impede economic growth and development, the important thing is to identify the obstacles.

Economic development is a complex process.

" It is complex because a modern economy is a complex system that links millions of people, firms, organizations, and government agencies. Adding to the complexity is the fact that the economy is an integral component of even larger and more complex social and natural systems. Humans interact and carry out our economic activities within a society, and our economic and social systems operate within a natural environment that we call the ecosystem".

Economic Growth and Development: Third Edition

By Hendrik Van den Berg

Pantoja is right. "[A]ll indicators must be a measure." However, "[t]here are [many] internal and external factors that impede economic growth and development." It is possible that what impedes growth and development may not be one that can be measured. Thus, it is necessary to have some theory (or theories) that explains the causal relations between various processes. Without it (or them), we are obliged to compare only those indices that cab be measured and we cannot arrive at the truth on what obstructs and impedes growth and development. It is quite possible that we only discover two indices which are only effects of a deeper but unmeasurable cause. This is a kind of inevitable destinies of econometric method.

Another important caution is that what impedes growth and development may differ according to countries and eras. Acemoglu and Robinson in their Why Nations Fail are too simply assuming that only one factor determines economic growth.

I have an impression that too much researches are done with no efforts to elucidate the causal relations behind the surface. Measurement without theory is still (or even more) a vital warning after it was uttered 70 years ago by Tjalling C. Koopmans.

If we want learn deeper structure of economic growth it is inevitable that we should develop deeper theories.

István Kónya Karel Kouba Atul Kohli

In their review article, Peter J Lloyd and Cassey Lee emphasized the difficulty of measuring institutions (3.4 Measuring Institutional Variables). All institutional economists think that institution matters for economic growth and development but many of them do not try to measure institutions.

Article A Review of the Recent Literature on Institutional Economics...

Rossitsa Rangelova and readers of this page

A good account of the history of growth theory. More supplementary information can be obtained form my working paper

Working Paper Growth Theory As It Ought to Be: Comments on Kurz and Salvad...

The complexity of the economy also has an impact in the social, political and natural environment, for example in the year 2009 the Mexican economy was affected by an epidemic that affected the growth of the Gross Domestic Product (-5.29%).

Also, there are other factors that are a consequence of economic growth such as pollution, which is the case of the Chinese economy, which grew at an annual rate of nearly 8 percent in last decade, the GDP growth was product of industrial production . China is one of most important emitters of the greenhouse gases that contribute to global warming.

I have sent Rossitsa a PDF copy of my working paper. If there is anybody who suffers the same trouble as she, please ask me. I am ready to send a PDF copy.

Martha,

Article A Review of the Recent Literature on Institutional Economics...

is really a good review on institutional economics. It is a revelation to development economists too. Please read it.