Economic development is the development of economic wealth of countries or regions for the well-being of their inhabitants.
From a policy perspective,
economic development can be defined as efforts that seek to improve the economic well-being and quality of life for a community by creating and/or retaining jobs and supporting or growing incomes and the tax base.
Contents
1 Overview
1.1 Local development
1.2 Academic and institutional approaches
2 Models of economic development
2.1 Harrod-Domar Model
2.2 Exogenous growth model
2.3 Surplus labor
2.4 Harris-Todaro model
3 Regional policy
3.1 Economic developers
4 See also
5 Institutions
6 References
7 External links
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Overview
There are significant differences between economic growth and economic development.The term "economic growth" refers to an increase (or growth) in real national income or product expressed usually as per capital income. National income or product itself is commonly expressed in terms of a measure of the aggregate output of the economy called gross national product (GNP). Per capita income then is simply gross national product divided by the population of the country. When the GNP of a nation rises, whatever the means of achieving the outcome, economists refer to it as economic growth.
The term "economic development," on the other hand, implies much more when used in relation to a country or an entire economy. It typically refers to improvements in a variety of indicators, such as literacy rates and life expectancy, and it implies a reduction in poverty.
Critics point out that GDP is a narrow measure of economic welfare that does not take into account important non-economic aspects such as more leisure time, access to health & education, the environment, freedom, or social justice. Economic growth is a necessary but insufficient condition for economic development.
Local development
The term "economic development" is often used in a regional sense as well (e.g., a mayor might say that "we need to promote the economic development of our city"). In this sense, economic development focuses on the recruitment of business operations to a region, assisting in the expansion or retention of business operations within a region or assisting in the start-up of new businesses within a region. (See section ''regional policy'' below.)
In addition to economic models, the needs of constituency groups guide economic developers actions. For example, a local economic developer working out of a mayor''s office may act towards decreasing unemployment by attracting businesses with large labor needs (call centers). The economic developer working for the chamber of commerce dominated by banks, real estate agents and utilities will recruit manufacturers with large capital investments (steel and chemical plants). The economic developer working for the state manufacturers association will lobby for more workforce training money. The economic developer working for a university will concentrate on business start-ups, specifically those based on intellectual property developed by the university (biotech).
Academic and institutional approaches
Economic development can be seen as a complex multi-dimensional concept involving improvements in human well-being – however defined.
Professor Dudley Seers argues that development is about outcomes, that is, development occurs with the reduction and elimination of poverty, inequality, and unemployment within a growing economy.<citation needed>
Professor Michael Todaro sees three objectives of development:<citation needed>
Producing more ‘life sustaining’ necessities such as food, shelter, and health care and broadening their distribution
Raising standards of living and individual self esteem
Expanding economic and social choice and reducing fear
The UN has developed a widely accepted set of indices to measure devnt against a mix of composite indicators:<citation needed>
UN’s Human Development Index (HDI) measures a country’s average achievements in three basic dimensions of human development: life expectancy, educational attainment, and adjusted real income ($PPP per person).
UN’s Human Poverty Index (HPI) measures deprivation using the percent of people expected to die before age 40, the percent of illiterate adults, the percent of people without access to health services and safe water and the percent of underweight children under five.
Development economics emerged as a branch of economics because economists after World War II became concerned about the low standard of living in so many countries of Latin America, Africa, and Asia. There are, however, important reservations in making development economics a branch of economics as opposed to the ultimate objective of the study of economics.
The first approaches to development economics assumed that the economies of the less developed countries (LDCs), were so different from the developed countries that basic economics could not explain the behavior of LDC economies. Such approaches produced some interesting and even elegant economic models, but these models failed to explain the patterns of no growth, slow growth, or growth and retrogression found in the LDCs.
Slowly the field swung back towards more acceptance that opportunity cost, supply and demand, and so on apply to the LDCs also. This cleared the ground for better approaches. Traditional economics, however, still couldn''t reconcile the weak and failed growth patterns.
What was required to explain poor growth were macro and institutional factors beyond micro concepts of the firm, individual preferences, and endowments. Institutional analysis has been able to explain the poor growth patterns much better than the market failure theories did. However, there is no generally accepted institutional theory of economic development that a large share of development economists agree upon. There is not even agreement on how important institutional factors are.
Models of economic development
The 3 building blocks of most growth models are: (1) the production function, (2) the saving function, and (3) the labor supply function (related to population growth). Together with a saving function, growth rate equals s/ß (s is the saving rate, and β is the capital-output ratio). Assuming that the capital-output ratio is fixed by technology and does not change in the short run, growth rate is solely determined by the saving rate on the basis of whatever is saved will be invested.
Harrod-Domar Model
The Harrod-Domar Model delineates a functional economic relationship in which the growth rate of gross domestic product (g) depends directly on the national saving ratio (s) and inversely on the national capital/output ratio (k) so that it is written as g = s / k. The equation takes its name from a synthesis of analyses of growth process by two economists (Sir Roy Harrod of Britain and Evsey Domar of the USA). The Harrod-Domar model in the early postwar times was commonly used by developing countries in economic planning. With a target growth rate, the required saving rate is known. If the country is not capable of generating that level of saving, a justification or an excuse for borrowing from international agencies can be established. An example in the Asian context is to ascertain the relationship between high growth rates and high saving rates in the cases of Japan and China. It is more difficult to introduce the third building block of a growth model, the labor and population element. In the long run, growth rate is constrained by population growth and also by the rate of technological change.
Exogenous growth model
The exogenous growth model (or neoclassical growth model) of Robert Solow and others places emphasis on the role of technological change. Unlike the Harrod-Domar model, the saving rate