Economic development

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Not to be confused with Development economics.

Economic development is the sustained, concerted actions of policy makers and communities
that promote the standard of living and economic health of a specific area. Economic
development can also be referred to as the quantitative and qualitative changes in the economy.
Such acts can involve multiple areas including development of human capital, critical
infrastructure, regional competitiveness, social inclusion, health, safety, literacy, and other
initiatives. Economic development differs from economic growth. 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]

Contents

1 Type
2 History
o 2.1 Growth and development
3 Goals
4 Regional policy
o 4.1 Organization
o 4.2 International Economic Development Council
5 Development indicators and indices
o 5.1 GDP per capita - Growing development population
o 5.2 Income distribution
o 5.3 Literacy and education
o 5.4 Access to healthcare
o 5.5 Social security and pensions
o 5.6 Modern transportation

6 Community competition
7 See also
8 References
9 Further reading

Type
See also: Development economics

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.[2]
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.

Although nobody is certain when the concept originated, most people agree that development is
closely bound up with the evolution of capitalism and the demise of feudalism.[3]
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.[4][5]
Economic development can also be considered as a static theory that documents the state of an
economy at a certain time. According to Schumpeter (2003), the changes in this equilibrium state
to document in economic theory can only be caused by intervening factors coming from the
outside.[6]

History
Economic development originated in the post war period of reconstruction initiated by the US. 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 peoples entitlements and
their corresponding capabilities, morbidity, nourishment, literacy, education, and other socioeconomic indicators.[7] Borne out of the backdrop of Keynesian, advocating government
intervention, and neoclassical economics, stressing reduced intervention, with rise of highgrowth 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.[1]
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.[8]
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

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.

Goals
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, 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.[9]

Regional policy
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 K12 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 todays 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.
Organization
Main article: economic development organization

Economic development has evolved into a professional industry of highly specialized

practitioners. The practitioners have two key roles: one is to provide leadership in policymaking, 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
publicprivate 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 world wide 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 midyear population. GDP is the sum of
gross value added by all resident producers in the economy plus any product taxes and minus any
subsidies 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.
Income distribution

Income distribution means that income level of people of certain country increases and equitable
distribution.
Literacy and education

literacy and educational 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
Modern transportation

European development economists have argued that the existence of modern transportation
networks- notably high-speed rail infrastructure constitutes a significant indicator of a countrys
economic advancement: this perspective is illustrated notably through the Basic Rail
Transportation Infrastructure Index (known as BRTI Index) [10] and related models such as the
(Modied) Rail Transportation Infrastructure Index (RTI) [11]

Community competition

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.