Chapter 1
Thinking about Growth
When we have numbers we can quantify things and compare them. In the 1960s
growth in South Korea was 7 per cent per annum and in India around 4 per cent.
These numbers allow us to quantify that the Korean economy grew nearly twice
as fast as that of India and would lead to the Korean economy doubling in size
every decade. Sometimes it is relatively easy to attach numbers (such as
numbers of teachers or output of steel) but very often far more difficult (such as
the extent of liberalization or democracy or the quality of education). The most
important numbers in economics are those for measuring the total size or growth
of the economy: gross domestic product (GDP) and sometimes gross national
product (GNP). This chapter first shows how economists have tried to measure
total GDP and GNP and the problems they have encountered in doing so, then
assesses the three main ways of thinking about growth: as a process of change,
as progress towards an ideal end-state and as an assumption of progress. Growth
gives us a sensation of relentless upward movement but this does not mean that
all good things go together in a growing economy. The broader concepts of the
good society or well-being require us to think about how economic growth inter-
acts with, causes and in turn is influenced by phenomena such as poverty,
inequality, n utritional status and environmental quality.
What is growth?
The starting point in thinking about growth is GDP, which is defined as the
total value of all goods and services produced within a country in a single year.
GDP is based on the geography of production. GNP is defined as the total
value of goods and services produced by nationally owned factors of produc-
tion in a single year. GNP is based on the ownership of production. The two
may differ due to the activities of multinational corporations (MNCs). If a US-
owned company invests in France and earns profits, those profits are part of US
GNP because they are the income of a US-owned firm, so US GNP is higher
than US GDP. For France, the profits of the US MNC are added to GDP,
because they represent income earned within France but reduce French GNP
because those profits are not earned by a French-owned firm. In general devel-
oping countries tend to host MNC investment and those MNCs remit profits
back to shareholders in their home country so GDP for developing countries
tends to be higher than GNP.
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