Economic growth and development: Two approaches to economic growth and development

Economic growth and development are intertwined and can be assessed from two perspectives: the mainstream and the critical. In the mainstream approach, economic growth and development are concerned with the unfulfilled material needs of people. Countries need economic growth to ensure that generates enough resources to meet the needs of their population. According to this approach, development is linear: there is a specific "path" that countries can follow to achieve development. Of course, there are different stages that countries must reach and exceed before achieving economic growth and development. According to Rostow, the five development stages include the initial "traditional society," a "take off" phase and the final "high mass consumption" stage. Originally this approach implied that there was a possibility of unlimited economic growth and thus that all countries could achieve equal levels of development. Later, the focus of economic growth was transformed to sustainable economic growth.

Observers indicate that the cultural context is fundamental because it shapes the values, beliefs and attitudes that frame economic growth and development. Some go on to argue that development is "state of mind" and thus countries that fall behind need to reshape their values and attitudes in order to enter the path to economic growth and development.

The critical approach to economic growth and development, conversely, puts emphasis not on a linear development path but on a diverse route. This approach contends that development is about meeting the basic material needs of people and also the non-material. Human well-being is possible by creating societies whose social, political, economic and cultural structures empower their members. In this context, some observers consider "development as freedom." Communities can become self-sufficient thriving at balancing their activities with nature. At the same time, sound democratic institutions allow societies to be more inclusive in terms of marginalized groups that lack access to the community's resources. An empowered society enables its members to achieve their potential and thus reach higher levels of prosperity as a community. Investment in human capital, for example, is fundamental for economic growth and development.

In this context, country competitiveness functions as the basis for economic growth and eventually for furthering development. Business efficiency, for example, can generate the ideal competitive landscape for countries to achieve prosperity by striving to use available resources productively. Government efficiency, also contributes by facilitating a context in which competitiveness can flourish. For this reason, the IMD World Competitiveness Center in its Competitiveness Index considers both approaches to economic growth and development. The international competitiveness index incorporates several leading economic indicators and other factors that address the subtler elements of economic growth and development. For example, among economic indicators, the competitiveness index considers GPD per capita, the growth of GDP by country, exports of goods and commercial services, terms of trade and the ratio of trade to GDP. Among the more subjective factors of economic growth and development that the Competitiveness Index incorporates are world education rankings, employee training, innovative capacity, language skills, quality of life, the attitudes of those members of society with direct impact on competitiveness and the general value system. In short, the Competitiveness Index assumes an all-encompassing approach to economic growth and development.


IMD business school

Looking for an executive program from a top-ranked business school?
Use our interactive Program Finder to find the best executive development program for you!


Recommended readings

Becker, G., Chicago. Human capital: A theoretical and empirical analysis with special reference to education. University of Chicago Press: 1993.

Easterly, W., 2002. The elusive quest for growth. Cambridge: MIT Press.

Harrison, L., 1986. Underdevelopment is a state of mind. New York: Basic Books.

Pieterse, J. N., 2010. Development theory. New York: Sage.

Porter, M., 1990. Competitive advantage of nations. New York: Free Press.

Rostow, W. W., 1991. The stages of economic growth: A non-communist manifesto. Cambridge: Cambridge University Press.

Schultz, T. P., 1995. Investment in women's human capital. Chicago: University of Chicago Press.

Schumpeter, J. A., 1982. The theory of economic development: An inquiry into profits, capital, credit, interest, and the business cycle. New Jersey: Transaction Publishers.

Sen, A., 1999. Development as freedom. New York: Random House.