Economic growth and economic development- any direct correlation?

Entrepreneurs consider time as an important resource to be managed in the value creation chain. Thus when the rains intensified in the southern sector around mid-May, I had to drop my pen and laptop and head for the hinterland to avail myself of the rains; nature’s vital resource in crop production.

Writing as a hobby became a casualty of that move, particularly as I bemoaned the lack of internet connectivity and the awfully deplorable roads I travelled on between Odoben – Brakwa and Breman Asikuma areas, respectively. Somebody’s political fortunes may be impaired if those roads remain in their current state.

I am back to my favourite writing pastime, after taking advantage of the rains to scatter some new seeds and break cocoa pods, the value of which has been a headache for the government in view of falling international prices.

It came to pass during the period that parliament contemplated a 450- seater parliamentary chamber to accommodate an expected increase in the number of parliamentarians. The furore that generated was immense and cut across virtually all echelons of society.  How I relished the expression of peoples’ power over the elected!

In an earlier write-up on the determination of exchange rates, I tried to explain in simple Kejetia economics how our national penchant for unbridled importation impacts the value of the cedi. I got into trouble with a friend who felt unamused about my comparison of Ghana’s relatively grandiose parliamentary chamber to the  church-like pews and simplicity of the British House of Commons. I pointed out in that article  that virtually everything in our legislative edifice was imported, and contributed to the low value of the cedi against other currencies.

When the people revolted against the plan for the new parliamentary chamber, I was beside myself with vindication, especially when video clips went viral on social media about deplorable roads, schools and medical infrastructure across the country, especially in the rural areas.

It is surprising how the negative impact of the road sector particularly is negating the gains from the laudable “Planting For Foods and Jobs” programme, and how this affects economic development.

This led me to consider prioritization as a development imperative. The linkage between economic growth and economic development struck hard as I mused over our seemingly lopsided development trajectory.

As an economics enthusiast, a banker and a farmer with deep roots in the rural environment, the apparent disconnect between the elected and the electorate stoked my imagination to explore the correlation between the apparently high economic growth indices and how these translate into improved living standards of the people.

Ghana is currently touted as one of the fastest growing economies in Africa. The growth rates over the last few years are commendable. Inflation has been largely confined in the single digit bracket, just as the budget deficit has been reined in, at the displeasure of unpaid contractors reeling against mounting interest on their bank loans. The cedi has stabilized somewhat, waiting to breathe  properly in line with our production and consumption (especially importation) patterns.

For a reality check, however, ask average university graduates who have been unemployed or under employed for the last five years for their views about Ghana’s economy and you will be amazed at the extent of their pessimism in spite of what the economic indicators show. Similar dark views can be reported among the people I interact with in the rural settings, political biases notwithstanding.

Against the backdrop of racism, xenophobia and uncertain social cohesion even in some developed economies, the youth yearn to emmigrate to these same countries. According to my head labourer, who claims loudly to speak the minds of most of his colleagues, if 1000 ships were to dock here to offer promises of jobs and better living standards in those countries, many Ghanaian towns and villages would be empty in no time as parents would push their youth to simply leave for greener pastures.

Someone might say he is exaggerating. But when he boldly affirms his views on why the deaths across the Mediterranean sea continue but African youth (including Ghanaians) are still unperturbed in their quest to reach Europe through that perilous route, his assertion cannot be brushed off easily.

Who, then, are the beneficiaries of the country’s “unprecedented “economic growth that we are being called upon to applaud? The answer to that may be found in how we interrogate the linkage between economic growth and economic development, without any partisan political lenses.

The objective of this piece is to help readers, particularly policy makers and the electorate to appreciate the similarities and differences between the two economic concepts. Hopefully, this would help to manage the expectations of the populace, while enabling the power holders too to  understand the seeming disconnect between  what they consider to be  successful economic management and what the people feel in terms of their living standards. Perhaps this would also provide some insights into how (ceteris paribus), this determines voting patterns.

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The terms economic growth and economic development sound very similar.  In spite of this   similarity, they are markedly different in terms of concept, scope and the methods of measuring them, as well as how they affect change in an economy.  Economic growth is a catalyst but not a sufficient condition for economic development.

The result (proceeds) of the economic growth must be consciously directed to improving the living standards of the people for them to directly feel the positive changes. It is therefore possible for a country to experience economic growth without economic development.

Depending on the sectors where the growth has been experienced (reflected in the structure of the economy) and how the fruits of such growth have been deployed or distributed (the beneficiaries of the growth), it is still possible to experience stunted economic development. Such conditions may reflect in mass agitations with the potential to disturb social equilibrium and even the peace in the country.

What  then is economic growth?

Economic growth is a measure of the increase in an economy’s output (the value of goods and services produced) or the expansion in the country’s production possibility curve. This is usually measured on an annual basis, but it is possible also to determine on quarterly or even monthly basis. These quantitative changes are measured in finite terms by using the percentage increase of the country’s gross domestic product.

A common indicator used is the per capita income, which roughly translates as the total value of goods and services produced in the country over a defined time, divided by the population. It is a convenient statistical measurement but heavily flawed since it rests on the presumption that on average, every citizen earns that resultant figure! It therefore clouds inherent inequities in the distribution of the national income thereby generated, being just a quantitative indicator.

The sector that produced the most income in the defined short term period may employ comparably insignificant portion of the populace, further diluting the significance of this measurement. The general populace may still wallow in abject poverty, as the lucky few beneficiaries of such income may even choose to spend their incomes overseas or on imported items that further depreciate the local currency.

Economic growth typically does not take into account factors that are not part of the formal economy. It is single dimensional in nature; focusing on the income generated in the country but not necessarily on how that income is distributed or deployed to affect the lives of the people. Economic growth may therefore be said to be a narrower concept than economic development.

It goes without saying, therefore, that for a country with such a large informal sector like Ghana, the growth, however it is touted, may only remain in the form of icy statistics, not significantly felt by the populace. So when the managers of the economy  begin to ask themselves whether public  agitations emanate “from the  people’s tiredness with eating cake, the general  populace may respond that they have not seen any cake at all,” hence the disillusion.

Without doubt, Ghana has experienced some measure of growth since the commencement of oil production. Thus the figures will show this growth but what proportion of the population is directly involved in this production chain to be direct beneficiaries of the growth? How has the government deployed this incremental income to effect positive changes in the livelihood of the people?

That is why it is important to dissect the growth, minus the oil sector to see whether there have been accompanying changes in the other sectors that employ majority of the people, (like improvements in agricultural production for local consumption and export, expansion in roads and transport infrastructure) or whether by dint of technological change, new economic sectors have emerged to produce additional income sources for a larger section of the populace.

What about economic development?

Economic development focuses on increasing intangible results, such as systemic changes in peoples’ standard of living through access to improved healthcare and educational facilities, among others. Economic development reflects in general self-esteem in an economy, indicating an upward movement of an entire social system.

In terms of scope, economic development is a multi-dimensional phenomenon, based on both broad quantitative and more importantly, qualitative criteria. Economic development does not only focus on incomes of the population but also general improvement in their living standards.

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Economic development focuses on intangible changes to provide qualitative results, which will in turn lead to quantitative results. Such measures taken for development include the Human Development Index (HDI), Human poverty index (HPI), gender- related index (GDI), the literacy rate of a community, life expectancy rates, infant mortality rates,among others.

The fruits of economic growth, when consciously and equitably distributed can produce economic development over the long term. Thus if the nation’s Social Investment Fund from the oil proceeds, for instance, is  judiciously utilized in the provision of social intervention schemes like rural roads construction and healthcare facilities, it may not directly put monies in peoples’ pockets but would make it easier for them to cart farm produce to the marketing centres for fair prices and be healthier. General costs of production and even post- harvest losses may be reduced. With such increasing incomes, farmers can afford various necessities which other things being equal, would prompt investors/entrepreneurs to increase production to meet increased demand.

Economic development can measure the increase in a community’s collective  happiness , harnessed from affordable housing, food and even entertainment.

Visible and sustained economic development, especially in the rural settings have the intangible benefit of social inclusion where the populace feels a sense of belonging to the workings of the government machinery, especially through the local government system.

Hard choices between economic growth and development.

As has been explained above, the scope of economic development is far broader than that of economic growth. Economic development has a longer term orientation than economic growth.

Economic growth measures the formal economy in very quantitative terms and in tangible results, mostly focusing on GDP and overall output. Economic growth is not concerned with sustainability, nor does it look into depletion of natural resources which may lead to negative results for an economy, such as environmental degradation, pollution or disease.

This leads to a critical dilemma for the Ghanaian politician who has a four year term to convince the electorate of their competence in managing the nation’s resources in the midst of endemic deprivation. Invariably, the politician develops a short term orientation in the quest to produce results within the limited four year mandate. It is not surprising, therefore to find an incumbent government touting their successes in meeting economic growth indices, even at the expense of rising unemployment and unpopular tax hikes.

The resort to short termism at the expense of sustainability becomes a really hard choice, like reducing the budget deficit, even if it means freezing employment in the public sector, brakes on vital enabling infrastructure and sometimes withdrawal of subsidies.

When these measures succeed and ironically begins to bite the electorate towards the next elections, the savvy politician begins to evaluate their chances of re-election against the backdrop of earlier promises. Torn between what they consider to be operating between the devil and the deep blue sea, they momentarily drop their obsession with fine economic growth indices, hence the perennial election year imbalances in the same statistical indices they prided themselves on earlier.

The work performed by economic development will lead to many qualitative changes in an economy, This will in time have an impact on the overall output, with reduction in waste and responsible resource utilisation. Positive change in economic development can lead to economic growth, for instance, with an educated, healthy and motivated workforce. This leads to a symbiotic relationship between economic growth and development.

The ultimate goal of economic development is sustained economic growth. The key challenge is to deal first with creating the environment that will give impetus to such high growth through the development of infrastructure, purposeful linkages between key economic sectors and quality human capital.

To conclude, it must be emphasized that economic development is the outcome of concerted and result-oriented activities. Depending on the prevailing political system, this may come mainly from the corridors of government, in either creating the environment for the private sector to be motivated to increase their risk appetite through expansion or new investment; or by the government directly leading in the economic transformation agenda.

Another key point to note is that economic growth does not automatically produce economic development, though  the former is a vital ingredient in the growth of the latter through “appropriate “ national income distribution. A skewed national income distribution framework is a recipe for national insecurity. Sustained economic development promotes national peace and stability.

The writer is a Fellow of the Chartered Institute of Bankers, an adjunct Lecturer at the National Banking College, a farmer and the author of “Risk Management in Banking” textbook.


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