ECONOMIC DEVELOPMENT

Economic development is the development of economic wealth of countries,

regions or communities 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.

ECONOMIC GROWTH AND ECONOMIC DEVELOPMENT

There are significant differences between economic growth and economic

development. The term "economic growth" refers to the increase (or growth) of a
specific measure such as real national income, gross domestic product, or per
capita income. National income or product is commonly expressed in terms of a
measure of the aggregate value-added output of the domestic economy called
gross domestic product (GDP). When the GDP of a nation rises economists refer
to it as economic growth.

The term "economic development," on the other hand, implies much more. It
typically refers to improvements in a variety of indicators such as literacy rates,
life expectancy, and poverty rates. GDP is a specific measure of economic welfare
that does not take into account important aspects such as leisure time,
environmental quality, freedom, or social justice. Economic growth of any specific
measure is not a sufficient definition of economic development.

Development looks at a wider range of statistics than just GDP per capita.
Development is concerned with how people are actually affected. It looks at their
actual living standards and the freedom they have to enjoy a good standard of
living.
HOW TO MEASURE ECOMIC DEVELOPMENT

Measures of economic development will look at:

 Real income per head – GDP per capita

 Levels of literacy and education standards
 Levels of health care e.g. number of doctors per 1000 population
 Quality and availability of housing
 Levels of environmental standards
 Life expectancy.

Measures of economic development

Measuring economic development is not as precise as measuring GDP, because it

depends what factors are included in the measure.

There are several different measures of economic development, such as the

Human development index (HDI)

Human development index (HDI)

 Levels of infrastructure – e.g. transport and communication

 Levels of corruption, e.g what percentage of tax rates are actually collected
and spent on public services.
 Educational standards and labour productivity. Basic levels of literacy and
education can determine productivity of workforce.
 Levels of inward investment. For example, China has invested in many
African countries to help export raw materials, that its economy needs.
 Labour mobility. Is labour able to move from relatively unproductive
agriculture to more productive manufacturing.
 Flow of foreign aid and investment. Targeted aid, can help improve
infrastructure and living standards.
 Level of savings and investment. Higher savings can fund more investment,
helping economic growth.
Economic growth without development

It is possible to have economic growth without development. i.e. an increase in

GDP, but most people don’t see any actual improvements in living standards.

Economic growth may only benefit a small % of the population. For example, if a
country produces more oil, it will see an increase in GDP. However, it is possible,
that this oil is only owned by one firm, and therefore, the average worker doesn’t
really benefit.

Corruption. A country may see higher GDP, but the benefits of growth may be
siphoned into the bank accounts of politicians

Environmental problems. Producing toxic chemicals will lead to an increase in real

GDP. However, without proper regulation it can also lead to environmental and
health problems. This is an example of where growth leads to a decline in living
standards for many.

Congestion. Economic growth can cause an increase in congestion. This means

people will spend longer in traffic jams. GDP may increase but they have lower
living standards because they spend more time in traffic jams.

In summary

Economic growth means an increase in real national income / national output.

Economic development means an improvement in quality of life and living

standards, e.g. measures of literacy, life-expectancy and health care.

Ceteris paribus, we would expect economic growth to enable more economic

development. Higher real GDP, enables more to be spent on health care and
education.

However, the link is not guaranteed. The proceeds of economic growth could be
wasted or retained by a small wealthy elite.
In its broadest sense, economic development encompasses three major areas:

1) Policies that governments undertake to meet broad economic objectives such

as price stability, high employment, expanded tax base, and sustainable growth.
Such efforts include monetary and fiscal policies, regulation of financial
institutions, trade, and tax policies.

2) Policies and programs to provide infrastructure and services such as highways,

parks, affordable housing, crime prevention, and educational programs and
projects.

3) Policies and programs explicitly directed at job creation and retention through
specific efforts in business finance, marketing, neighborhood development, small
business start-up and development, business retention and expansion,
technology transfer, workforce training and real estate development. This third
category is a primary focus of economic development professionals.

Economic developers

Economic development, which is thus essentially economics on a social level, has

evolved into a professional industry of highly specialized practitioners. The
practitioners have two key roles: one is to provide leadership in policy-making,
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 public-private partnerships organizations that may be
partially funded by local, regional, state, or federal tax money. These economic
development organizations (EDOs) 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.

With more than 20,000 professional economic developers employed worldwide 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.
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 and they work closely with IEDC.

There is intense competition between communities, states, and nations for new
economic development projects in today's globalized world, and the struggle to
attract and retain business is further intensified by the use of many variations of
economic incentives to the potential business. There is significant attention
placed 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 and community 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.

PORVERTY

Poverty is general scarcity or the state of one who lacks a certain amount of
material possessions or money. It is a multifaceted concept, which includes social,
economic, and political elements. Absolute poverty or destitution refers to the
lack of means necessary to meet basic needs such as food, clothing and shelter.
Absolute poverty is meant to be about the same independent of location. Relative
poverty occurs when people do not enjoy a certain minimum level of living
standards as compared to the rest of society and so would vary from country to
country, sometimes within the same country.

After the industrial revolution, mass production in factories made producing

goods increasingly less expensive and more accessible. Of more importance is the
modernization of agriculture, such as fertilizers, to provide enough yield to feed
the population. Providing basic needs can be restricted by constraints on
government's ability to deliver services, such as corruption, tax avoidance, debt
and loan conditionalities and by the brain drain of health care and educational
professionals. Strategies of increasing income to make basic needs more
affordable typically include welfare, economic freedoms and providing financial
services.

Poverty reduction is a major goal and issue for many international organizations
such as the United Nations and the World Bank

Types of Poverty
Absolute Poverty
It is the extreme kind of poverty involving the chronic lack of basic food, clean
water, health and housing. Poeple in absolute poverty tend to struggle to live and
experience a lot of child deaths from preventable diseases like malaria, cholera
and water-contamination related diseases. This type is usually long term in
nature, and often handed to them by generations before them. This kind of
poverty is usually not common in the developed world.
 

Relative Poverty
This kind is usually in relation to other members and families in the society. For
example, a family can be considered poor if it cannot afford vacations, or cannot
buy presents for children at Christmas, or cannot send its young to the university.
Even though they have access to government support for food, water, medicine
and free housing, they are considered poor because the rest of the community
have access to superior services and amenities.

Situational Poverty (Transitory)

People or families can be poor because of some adversities like earthquakes,
floods or a serious illness. Sometimes, people can help themselves out of this
situation quickly if they are given a bit of assistance, as the cause of their
situations was just one unfortunate event.

Generational or Chronic Poverty

This is a more complicated type and we will see a detailed example here. This is
when poverty is handed over to individuals and families from generations before
them. In this type, there is usually no escape from it, as people are trapped in its
causes and have no access to tools that will help them get out of it.