Economic development

From Wikipedia the free encyclopedia

In the economic study of the public sector, economic and social development is the process by which the economic well-being and quality of life of a nation, region, local community, or an individual are improved according to targeted goals and objectives.

The term has been used frequently in the 20th and 21st centuries, but the concept has existed in the West for far longer. "Modernization", "Westernization", and especially "industrialization" are other terms often used while discussing economic development.

Whereas economic development is a policy intervention aiming to improve the well-being of people, economic growth is a phenomenon of market productivity and increases in GDP; economist Amartya Sen describes economic growth as but "one aspect of the process of economic development". Economists primarily focus on the growth aspect and the economy at large, whereas researchers of community economic development concern themselves with socioeconomic development as well.

Many institutions of higher education offer economic development as an area of study and research such as McGill University, London School of Economics, International Institute of Social Studies, and the Balsillie School of International Affairs.

Definition and terminology[edit]

The precise definition of economic development has been contested: while economists in the 20th century viewed development primarily in terms of economic growth, sociologists instead emphasized broader processes of change and modernization.[1] Development and urban studies scholar Karl Seidman summarizes economic development as "a process of creating and utilizing physical, human, financial, and social assets to generate improved and broadly shared economic well-being and quality of life for a community or region".[2] Daphne Greenwood and Richard Holt distinguish economic development from economic growth on the basis that economic development is a "broadly based and sustainable increase in the overall standard of living for individuals within a community", and measures of growth such as per capita income do not necessarily correlate with improvements in quality of life.[3] Economic development is a wider concept and has qualitative dimensions. Economic development implies economic growth plus progressive changes in certain important variables which determine well-being of the people,e.g: health, education. The University of Iowa's Center for International Finance and Development states that:


Though the concept's origin is uncertain, some scholars argue that development is closely bound up with the evolution of capitalism and the demise of feudalism.[4] Others link it to the postcolonial state.[5]

Mansell and Wehn also state that economic development has been understood by non-practitioners 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.[6][7] 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.[8]




There have been several major phases of development theory since 1945. Alexander Gerschenkron argued that the less developed the country is at the outset of economic development (relative to others), the more likely certain conditions are to occur. Hence, all countries do not progress similarly.[9] 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.



Growth and development[edit]

Economic growth deals with an increase in the level of output, but economic development is related to an increase in output coupled with improvement in the social and political welfare of people within a country. Therefore, economic development encompasses both growth and welfare values.




Yet others believe that several 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. The economic development of countries can also be implicated or contributed by the multinational corporations' companies.

Economic development goals[edit]

The development of a country has been associated with different concepts but generally encompasses economic growth through higher productivity,[13] political systems that represent as accurately as possible the preferences of its citizens,[14][15] the extension of rights to all social groups and the opportunities to get them[16] and the proper functionality of institutions and organizations that are able to attend more technically and logistically complex tasks (i.e. raise taxes and deliver public services).[17][18] These processes describe the State's capabilities to manage its economy, polity, society and public administration.[19] Generally, economic development policies attempt to solve issues in these topics.



Beyond the incentive compatibility problems that can happen to foreign aid donations –that foreign aid granting countries continue to give it to countries with little results of economic growth[20] but with corrupt leaders that are aligned with the granting countries’ geopolitical interests and agenda[21] –there are problems of fiscal fragility associated to receiving an important amount of government revenues through foreign aid. Governments that can raise a significant amount of revenue from this source are less accountable to their citizens (they are more autonomous) as they have less pressure to legitimately use those resources.[22] Just as it has been documented for countries with an abundant supply of natural resources such as oil,[23] countries whose government budget consists largely of foreign aid donations and not regular taxes are less likely to have incentives to develop effective public institutions.[22] This in turn can undermine the country's efforts to develop.

Economic development policies[edit]


Contractionary monetary policy is a tool used by central banks to slow down a country’s economic growth. An example would be raising interest rates to decrease lending. In the United States, the use of contractionary monetary policy has increased women’s unemployment.[25] Seguino and Heintz uses a panel dataset for each 50 states with unemployment, labor force participation by race, and annual labor market statistics. In addition, for contractionary monetary policy they utilize the federal funds rate, the short-term interest rates charged to banks. Seguino and Heintz Seguino concludes that the impact of a one percentage point increase in the federal funds rate relative to white and black women’s unemployment is 0.015 and 0.043, respectively[26]






International Economic Development Council[edit]


Development indicators and indices[edit]


GDP per capita – growing development population[edit]


Modern transportation[edit]

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)[28] and related models such as the (Modified) Rail Transportation Infrastructure Index (RTI).[29]

Introduction of The GDI and GEM[edit]

In an effort to create an indicator that would help measure gender equality, the UN has created two measures: the Gender-related Development Index (GDI) and the Gender Empowerment Measure (GEM). These indicators were first introduced in the 1995 UNDP Human Development Report.[30]

Gender Empowerment Measure[edit]

The Gender Empowerment Measure (GEM) focuses on aggregating various indicators that focus on capturing the economic, political, and professional gains made by women. The GEM is composed of just three variables: income earning power, share in professional and managerial jobs, and share of parliamentary seats.[31]

Gender Development Index[edit]

The Gender Development (GDI) measures the gender gap in human development achievements. It takes disparity between men and women into account in through three variables, health, knowledge, and living standards.[32]

Community competition[edit]



See also[edit]


  1. ^ Jaffee, David (1998). Levels of Socio-economic Development Theory. Westport and London: Praeger. p. 3. ISBN 9780275956585.
  2. ^ Seidman, Karl F. (2005). Economic Development Finance. Thousand Oaks: Sage Publications. p. 5. ISBN 9780765628176.
  3. ^ Greenwood, Daphne T.; Holt, Richard P. F. (2010). Local Economic Development in the 21st Century. Armonk and London: M. E. Sharpe. pp. 3–4. ISBN 9780765628176.
  4. ^ R. Conteras, "How the Concept of Development Got Started" University of Iowa Center for International Finance and Development E-Book [1] Archived 2008-10-08 at the Wayback Machine
  5. ^ Escobar, Arturo (November 1988). "Power and Visibility: Development and the Invention and Management of the Third World". Cultural Anthropology. 3 (4): 428–443. doi:10.1525/can.1988.3.4.02a00060. ISSN 0886-7356. S2CID 55332626.
  6. ^ "Archived copy". Archived from the original on 2006-10-14. Retrieved 2009-10-14.CS1 maint: archived copy as title (link)
  9. ^ Gerschenkron, Alexander (1962). Economic Backwardness in Historical Perspective. Cambridge, MA: Harvard University Press.
  10. ^ See Michael Todaro and Stephen C. Smith, "Economic Development" (11th ed.). Archived from the original on 2018-06-23. Retrieved 2012-03-30., Pearson Education and Addison-Wesley (2011).
  25. ^ Seguino, Stephanie (2019-05-28). "Engendering Macroeconomic Theory and Policy". Feminist Economics. 26 (2): 27–61. doi:10.1080/13545701.2019.1609691. hdl:10986/28951. ISSN 1354-5701.
  26. ^ SEGUINO, STEPHANIE; HEINTZ, JAMES (July 2012). "Monetary Tightening and the Dynamics of US Race and Gender Stratification". American Journal of Economics and Sociology. 71 (3): 603–638. doi:10.1111/j.1536-7150.2012.00826.x. ISSN 0002-9246.
  30. ^ United Nations Development Programme (1995). Human development report 1995. New York: Oxford University Press for the United Nations Development Programme (UNDP). ISBN 978-0-19-510023-5. OCLC 33420816.
  32. ^ "Gender Development Index (GDI) | Human Development Reports". Retrieved 2019-12-19.

Further reading[edit]

External links[edit]