Economic development
In economics, economic 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", "Globalization", and especially "Industrialization" are other terms often used while discussing economic development. Historically, economic development policies focused on industrialization and infrastructure; since the 1960s, it has increasingly focused on poverty reduction.
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".
Definition and terminology
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. 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". 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. The United Nations Development Programme in 1997 defined development as increasing people‟s choices. Choices depend on the people in question and their nation. The UNDP indicates four chief factors in development, especially human development, which are empowerment, equity, productivity, and sustainability.Mansell and Wehn 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 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 place. According to Schumpeter and Backhaus, the changes in this equilibrium state documented in economic theory can only be caused by intervening factors coming from the outside.
History
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: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, the more likely certain conditions are to occur. Hence, all countries do not progress similarly. 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 born out of an extension to traditional economics that focused entirely on the national product, or the aggregate output of goods and services. Economic development was concerned with the expansion of people's entitlements and their corresponding capabilities, such as morbidity, nourishment, literacy, education, and other socio-economic indicators. Borne out of the backdrop of Keynesian economics, and neoclassical economics, with the rise of high-growth countries and planned governments, economic development and 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.
During Robert McNamara's 13 years at the World Bank, he introduced key changes, most notably, shifting the Bank's economic development policies toward targeted poverty reduction. Before his tenure at the World Bank, poverty did not receive substantial attention as part of international and national economic development; the focus of development had been on industrialization and infrastructure. Poverty also came to be redefined as a condition faced by people rather than countries. According to Martha Finnemore, the World Bank under McNamara's tenure "sold" states poverty reduction "through a mixture of persuasion and coercion."
Economic development goals
The development of a country has been associated with different concepts but generally encompasses economic growth through higher productivity, political systems that represents the preferences of its citizens as accurately as possible, the extension of rights to all social groups and the opportunities to get them and proper functionalities of the institutions and the organizations that engages in more technical and complex tasks. These processes describe the State's capabilities to manage its economy, polity, society and public administration. Generally, economic development policies attempt to solve issues in those topics.Economic development is typically associated with improvements in a variety of areas or indicators, that may be the causes of economic development rather than the consequences of specific economic development programs. For example, health and education improvements have been closely related to economic growth, but the causality with economic development may not be obvious. In any case, it is important to not expect that particular economic development programs be able to fix many problems at once as that would establish unsurmountable goals that are highly unlikely to be achieved. Any development policy should have targeted goals and a gradual approach should be to avoid those goals being burdensome which has been termed by Prittchet, Woolcock and Andrews as 'premature load bearing'.
The State's capabilities, most often, limits the economic development goals of countries. For example, if a nation has minimum capacity to carry out basic functions, such as security and policing, or core service deliveries, it is unlikely that a program, that aims to foster a free-trade zone or distribute vaccinations to vulnerable populations, can accomplish their goals. This has been overlooked by multiple international organizations, aid programs and even participating governments who attempt to carry out the 'best practices' from other places in a carbon-copy manner with Insignificant achievements. This isomorphic mimicry –adopting organizational forms that have been successful elsewhere– hide institutional dysfunctions without any solutions contributes countries stuck in 'capability traps' where the country does not meets its development goals. An example of this can be seen through some of the criticisms of foreign aid and its success rate at helping countries develop.
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 but with corrupt leaders that are aligned with the granting countries' geopolitical interests and agenda –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 as they have less pressure to legitimately use those resources. Just as it has been documented for countries with an abundant supply of natural resources such as oil, 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. This in turn can undermine the country's efforts to develop.
Economic development policies
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 key issues in economic development. Currencies are often either under-valued or over-valued, resulting in trade surpluses or deficits. Furthermore, the growth of globalization has linked economic development with trends on international trade and participation in global value chains 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 support systems in developing countries more resilient by providing a variety of financial institutions. This could also add to financial security for small-scale producers.