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Economic development is the process by which a nation improves the economic, political, and social well-being of its people. The term has been used frequently by economists, politicians, and others in the 20th and 21st centuries. The concept, however, has been in existence in the West for centuries. Modernization, Westernization, and especially Industrialization are other terms people have used while discussing economic development. Economic development has a direct relationship with the environment and environmental issues.
Whereas economic development is a policy intervention endeavor with aims of economic and social well-being of people, economic growth is a phenomenon of market productivity and rise in GDP. Consequently, as economist Amartya Sen points out, "economic growth is one aspect of the process of economic development".
- 1 Type
- 2 History
- 3 Goals
- 4 Regional policy
- 5 Development indicators and indices
- 6 Community competition
- 7 See also
- 8 References
- 9 Further reading
- 10 External links
The scope of economic development includes the process and policies by which a nation improves the economic, political, and social well-being of its people.
The University of Iowa's Center for International Finance and Development states that:
- 'Economic development' is a term that economists, politicians, and others have used frequently in the 20th century. The concept, however, has been in existence in the West for centuries. Modernization, Westernisation, and especially Industrialisation are other terms people have used while discussing economic development. Economic development has a direct relationship with the environment.
Mansell and When also state that economic development has been understood since the World War II to involve economic growth, namely the increases in per capita income, and (if currently absent) the attainment of a standard of living equivalent to that of industrialized countries. Economic development can also be considered as a static theory that documents the state of an economy at a certain time. According to Schumpeter and Backhaus (2003), the changes in this equilibrium state to document in economic theory can only be caused by intervening factors coming from the outside.
Economic development originated in the post-war period of reconstruction initiated by the United States. In 1949, during his inaugural speech, President Harry Truman identified the development of undeveloped areas as a priority for the west:
- “More than half the people of the world are living in conditions approaching misery. Their food is inadequate, they are victims of disease. Their economic life is primitive and stagnant. Their poverty is a handicap and a threat both to them and to more prosperous areas. For the first time in history humanity possesses the knowledge and the skill to relieve the suffering of these people ... I believe that we should make available to peace-loving peoples the benefits of our store of technical knowledge in order to help them realize their aspirations for a better life… What we envisage is a program of development based on the concepts of democratic fair dealing ... Greater production is the key to prosperity and peace. And the key to greater production is a wider and more vigorous application of modem scientific and technical knowledge."
There have been several major phases of development theory since 1945. From the 1940s to the 1960s the state played a large role in promoting industrialization in developing countries, following the idea of modernization theory. This period was followed by a brief period of basic needs development focusing on human capital development and redistribution in the 1970s. Neoliberalism emerged in the 1980s pushing an agenda of free trade and removal of Import Substitution Industrialization policies.
In economics, the study of economic development was borne out of an extension to traditional economics that focused entirely on national product, or the aggregate output of goods and services. Economic development was concerned in the expansion of people’s entitlements and their corresponding capabilities, morbidity, nourishment, literacy, education, and other socio-economic indicators. Borne out of the backdrop of Keynesian, advocating government intervention, and neoclassical economics, stressing reduced intervention, with rise of high-growth countries (Singapore, South Korea, Hong Kong) and planned governments (Argentina, Chile, Sudan, Uganda), economic development, more generally development economics, emerged amidst these mid-20th century theoretical interpretations of how economies prosper. Also, economist Albert O. Hirschman, a major contributor to development economics, asserted that economic development grew to concentrate on the poor regions of the world, primarily in Africa, Asia and Latin America yet on the outpouring of fundamental ideas and models.
It has also been argued, notably by Asian and European proponents of infrastructure-based development, that systematic, long-term government investments in transportation, housing, education, and healthcare are necessary to ensure sustainable economic growth in emerging countries.
Growth and development
Economic growth deals with increase in the level of output, but economic development is related to increase in output coupled with improvement in social and political welfare of people within a country. Therefore, economic development encompasses both growth and welfare values.
Dependency theorists argue that poor countries have sometimes experienced economic growth with little or no economic development initiatives; for instance, in cases where they have functioned mainly as resource-providers to wealthy industrialized countries. There is an opposing argument, however, that growth causes development because some of the increase in income gets spent on human development such as education and health.
According to Ranis et al., economic growth and development is a two-way relationship. According to them, the first chain consists of economic growth benefiting human development, since economic growth is likely to lead families and individuals to use their heightened incomes to increase expenditures, which in turn furthers human development. At the same time, with the increased consumption and spending, health, education, and infrastructure systems grow and contribute to economic growth.
In addition to increasing private incomes, economic growth also generate additional resources that can be used to improve social services (such as healthcare, safe drinking water, etc.). By generating additional resources for social services, unequal income distribution will be mitigated as such social services are distributed equally across each community, thereby benefiting each individual. Concisely, the relationship between human development and economic development can be explained in three ways. First, increase in average income leads to improvement in health and nutrition (known as Capability Expansion through Economic Growth). Second, it is believed that social outcomes can only be improved by reducing income poverty (known as Capability Expansion through Poverty Reduction). Lastly, social outcomes can also be improved with essential services such as education, healthcare, and clean drinking water (known as Capability Expansion through Social Services). John Joseph Puthenkalam's research aims at the process of economic growth theories that lead to economic development. After analyzing the existing capitalistic growth-development theoretical apparatus, he introduces the new model which integrates the variables of freedom, democracy and human rights into the existing models and argue that any future economic growth-development of any nation depends on this emerging model as we witness the third wave of unfolding demand for democracy in the Middle East. He develops the knowledge sector in growth theories with two new concepts of 'micro knowledge' and 'macro knowledge'. Micro knowledge is what an individual learns from school or from various existing knowledge and macro knowledge is the core philosophical thinking of a nation that all individuals inherently receive. How to combine both these knowledge would determine further growth that leads to economic development of developing nations.
Yet others believe that a number of basic building blocks need to be in place for growth and development to take place. For instance, some economists believe that a fundamental first step toward development and growth is to address property rights issues, otherwise only a small part of the economic sector will be able to participate in growth. That is, without inclusive property rights in the equation, the informal sector will remain outside the mainstream economy, excluded and without the same opportunities for study.
In the United States, Project Socrates outlined competitiveness as the driving factor for successful economic development in government and industry. By addressing technology directly, to meet customer needs, competitiveness was fostered in the surrounding environment and resulted in greater economic performance and sustained growth.
Economic development typically involves improvements in a variety of indicators such as literacy rates, life expectancy, and poverty rates. GDP does not take into account other aspects such as leisure time, environmental quality, interracial and united international peace, freedom, or social justice; alternative measures of economic well-being have been proposed. Essentially, a country's economic development is related to its human development, which encompasses, among other things, health and education. These factors are, however, closely related to economic growth so that development and growth often go together. Due to globalization growth and development in those countries are interrelated to trends on international trade and participation in Global Value Chains (GVCs) and international financial markets. The last financial crisis had a huge effect on economies in developing countries. Economist Jayati Ghosh states that it is necessary to make financial markets in developing countries more resilient by providing a variety of financial institutions. This could also add to financial security for small-scale producers.
In its broadest sense, policies of economic development encompass three major areas:
- Governments undertaking to meet broad economic objectives such as price stability, high employment, and sustainable growth. Such efforts include monetary and fiscal policies, regulation of financial institutions, trade, and tax policies.
- Programs that provide infrastructure and services such as highways, parks, affordable housing, crime prevention, and K–12 education.
- Job creation and retention through specific efforts in business finance, marketing, neighborhood development, workforce development, small business development, business retention and expansion, technology transfer, and real estate development. This third category is a primary focus of economic development professionals.
One growing understanding in economic development is the promotion of regional clusters and a thriving metropolitan economy. In today’s global landscape, location is vitally important and becomes a key in competitive advantage.
International trade and exchange rates are a key issue in economic development. Currencies are often either under-valued or over-valued, resulting in trade surpluses or deficits.
Economic development has evolved into a professional industry of highly specialized practitioners. The practitioners have two key roles: one is to provide leadership in policy-making, and the other is to administer policy, programs, and projects. Economic development practitioners generally work in public offices on the state, regional, or municipal level, or in public–private partnerships organizations that may be partially funded by local, regional, state, or federal tax money. These economic development organizations function as individual entities and in some cases as departments of local governments. Their role is to seek out new economic opportunities and retain their existing business wealth.
There are numerous other organizations whose primary function is not economic development that work in partnership with economic developers. They include the news media, foundations, utilities, schools, health care providers, faith-based organizations, and colleges, universities, and other education or research institutions.
International Economic Development Council
With more than 20,000 professional economic developers employed worldwide in this highly specialized industry, the International Economic Development Council (IEDC) headquartered in Washington, D.C. is a non-profit organization dedicated to helping economic developers do their job more effectively and raising the profile of the profession. With over 4,500 members across the US and internationally, serving exclusively the economic development community, IEDC membership represents the entire range of the profession ranging from regional, state, local, rural, urban, and international economic development organizations, as well as chambers of commerce, technology development agencies, utility companies, educational institutions, consultants and redevelopment authorities. Many individual states also have associations comprising economic development professionals, who work closely with IEDC.
Development indicators and indices
There are various types of macroeconomic and sociocultural indicators or "metrics" used by economists and geographers to assess the relative economic advancement of a given region or nation. The World Bank's "World Development Indicators" are compiled annually from officially-recognized international sources and include national, regional and global estimates.
GDP per capita – Growing development population
GDP per capita is gross domestic product divided by mid year population. GDP is the sum of gross value added by all resident producers in the economy plus any product taxes and minus any subsidizes not included in the value of the products. It is calculated without making deductions for depreciation of fabricated assets or for depletion and degradation of natural resources.
Literacy and education
Literacy and education simply means how well the local people of a certain area have access to education. It is the average number of educated people as compared to other countries in the world. The ratio of educated population to uneducated people
Access to Healthcare
Social security and pensions
European development economists have argued that the existence of modern transportation networks- such as high-speed rail infrastructure constitutes a significant indicator of a country’s economic advancement: this perspective is illustrated notably through the Basic Rail Transportation Infrastructure Index (known as BRTI Index) and related models such as the (Modiﬁed) Rail Transportation Infrastructure Index (RTI).
One unintended consequence of economic development is the intense competition between communities, states, and nations for new economic development projects in today's globalized world. With the struggle to attract and retain business, competition is further intensified by the use of many variations of economic incentives to the potential business such as: tax incentives, investment capital, donated land, utility rate discounts, and many others. IEDC places significant attention on the various activities undertaken by economic development organizations to help them compete and sustain vibrant communities.
Additionally, the use of community profiling tools and database templates to measure community assets versus other communities is also an important aspect of economic development. Job creation, economic output, and increase in taxable basis are the most common measurement tools. When considering measurement, too much emphasis has been placed on economic developers for "not creating jobs." However, the reality is that economic developers do not typically create jobs, but facilitate the process for existing businesses and start-ups to do so. Therefore, the economic developer must make sure that there are sufficient economic development programs in place to assist the businesses achieve their goals. Those types of programs are usually policy-created and can be local, regional, statewide and national in nature.
- Constitutional economics
- Factors of production
- Gender and development
- Private sector development
- Opportunity management
- International development
- World Bank Group
- Organisation for Economic Co-operation and Development
- International Monetary Fund
- European Free Trade Association
- North–South divide
- O'Sullivan, A. and Sheffrin, S. M. (2003). Economics: Principles in Action. Pearson Prentice Hall, Upper Saddle River, New Jersey.
- R. Conteras, "How the Concept of Development Got Started" University of Iowa Center for International Finance and Development E-Book 
- Mansell, R & and Wehn, U. 1998. Knowledge Societies: Information Technology for Sustainable Development. New York: Oxford University Press.
- Schumpeter, Joseph & Backhaus, Ursula, 2003. The Theory of Economic Development. In Joseph Alois Schumpeter. pp. 61–116. doi:10.1007/0-306-48082-4_3
- See Michael Todaro and Stephen C. Smith, "Economic Development 11th Edition"., Pearson Education and Addison-Wesley (2011).
- Sen, A (1983). "Development: Which Way Now?". Economic Journal. 93 (372): 745–62. doi:10.2307/2232744.
- Hirschman, A. O. (1981). The Rise and Decline of Development Economics. Essays in Trespassing: Economics to Politics to Beyond. pp. 1–24
- Jayati Gosh (January 2013). "Too much of the same". dandc.eu. D+C Development and Cooperation.
- Firzli, M. Nicolas J. (September 2013). "Transportation Infrastructure and Country Attractiveness". Revue Analyse Financière. Paris. Retrieved 26 April 2014.
- M. Nicolas J. Firzli : ‘2014 LTI Rome Conference: Infrastructure-Driven Development to Conjure Away the EU Malaise?’, Revue Analyse Financière, Q1 2015 – Issue N°54
- Vâsquez, Ian (2008). "Development, Economic". In Hamowy, Ronald. The Encyclopedia of Libertarianism. Thousand Oaks, CA: SAGE; Cato Institute. pp. 120–23. doi:10.4135/9781412965811.n76. ISBN 978-1-4129-6580-4. LCCN 2008009151. OCLC 750831024.
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