The article starts with a brief review of the history of development economics as a sub-discipline. Four sections then review theories of economic development according to whether economies are (a) relatively open or closed to international trade, (b) actively managed by the state (dirigiste) or reliant upon private activity (laissez-faire). All these theories are concerned primarily with explaining variation in long-term economic growth. Three sections then critically explore the relationship between economic growth and (a) income distribution and poverty, (b) cultural and institutional development (d) population.
How is it that poverty and plenty coexist? Theories of economic development have much to say on this matter. This section starts with definitions and then dips briefly into the history of the subject, introducing the three main themes of classical development economics - dualism and structuralism, industrialization and trade, and the strategic role of the state. It then contrasts such ‘grand theory’ more recent contributions to understanding the micro-level foundations of economic development. Four sections then review theories of economic development according to whether economies are relatively open or closed to international trade, and actively managed by the state (dirigiste) or reliant upon private activity (laissez-faire). All these theories are concerned primarily with explaining variation in long-term economic growth. Three sections then critically explore the relationship between economic development and (a) income distribution, poverty and well being (b) culture and institutions (c) population growth.
What is economic development?
The term ‘economic development’ refers to long-term changes in systems of production and distribution of goods and services affecting human welfare. In contrast to ‘economic growth’ it involves changes in the form as well as the scale of economic activity. In common usage, development is usually assumed to be by definition a good thing. However, students of development cannot assume this. Economies development is almost always fickle in its effects – some benefit at others’ expense, long-term gain may require short-term pain (and vice versa), and one person’s indicator of progress may be another’s indicator of regress.
The classical economists such as Smith, Ricardo, Malthus, and Marx were all directly concerned with understanding economic development (particularly early industrialization) in their own age. But as a contemporary sub-discipline of economics, development economics is often in practice defined geographically as the study of low and middle income countries, predominantly in Latin America, Africa and Asia. In 1995, the World Bank classified 49 countries (each with a population of more than one million) as low income and 58 as middle income. The basis for this classification was that their percapita Gross National Product (GNP) fell below 750 and 9,000 US dollars respectively. Together these countries contained approximately 85 per cent of the world’s population, and commanded 21 per cent of estimated global GNP. However, their economies are so heterogeneous that no satisfactory distinction can be drawn between them and the residual category of ‘rich’ countries. Neither is it possible, given the many linkages between them (in the form of trade, capital flows, migration, media and shared environmental resources) to study the economic development of the one group in isolation from the other. Third, economic development does not stop once countries industrialize. However, it is beyond the scope of one article to embrace such a wide sweep of literature. For this reasons alone, this article concentrates upon those theories that have been most influential in explaining economic development of low and middle-income countries during the second half of the twentieth century.
Department of Economics and International Development, University of Bath, UK. August 1999
2nd draft of an article for the UNESCO Encyclopedia of the Life Sciences.