ECONOMIC DEVELOPMENT

Carlo B. Capili

• the creation of wealth from which community benefits are realized.

- It is more than a jobs program, it’s an investment in growing your economy and
enhancing the prosperity and quality of life for all residents.

Economic development means different things to different people. On a broad scale,

anything a community does to foster and create a healthy economy can fall under the
auspice of economic development.

• influence the direction of private sector investment toward opportunities that can lead to
sustained economic growth.

Sustained economic growth can provide sufficient incomes for the local labor force,
profitable business opportunities for employers and tax revenues for maintaining an
infrastructure to support this continued growth.

• overall education, well-being, health, income and living standards of the general population
improves.

This is where the economy will gradually grow, change and become advanced. In other
words, a nation achieves economic development when emerging economies become
advance economies and you can see a gradual shift from agriculture to industry to
services that will result in economic growth.

Types of Economic Development Indicators and Indices

How can economic development be measured? Economists use different types of
economic development indicators and indices or metrics, to assess the growth and
development of a country or a region.

1. Human Development Index (HDI)

Note: one of the most popular types of economic development indicators, HDI encompasses three
dimensions, development standard of living, knowledge and longevity.

1. Standard of Living- we can measure this through the country’s GDP (Gross Domestic Product)
and PPP (Purchasing Power Parity).
2. Knowledge- combining literacy rate of adults and total tertiary, secondary and primary gross
enrolment ratio
3. Longevity- is measured by Life Expectancy in Birth
2. GDP per capita – growing development population

Note: GDP per capita is an easy-to-use component wherein you measure a country's economic output
per person which is calculated by dividing the GDP of a country by its population. 

So which country do you think has the highest and lowest GDP per capita? The highest
is Luxembourg has the highest GDP (nominal) per capita globally in 2020 which has ten times the world
GDP per capita, and over 460 times higher than the lowest, which is Burundi.

3. Gender Development Index (GDI)

Note: measures the gender gap in human development between women and men in 3 basic dimensions
of human development: a long and healthy life, knowledge, and a decent standard of living. It is
important for each countries to measure GDI since this will help policymakers to work on improving the
needs of women and girls.

4. Gender Empowerment Measure

Note: This type of economic development indicator focuses on professional, political and economic
gains made by females. Since it is known that women are usually in a disadvantaged position in the
workplace compared to men, it is important that we promote explicit attention to women’s needs and
perspectives.

GDI and GEM are necessary indicators of Economic Development since women are better represented
with proper care, and the lower the country’s gender inequality, the better its economic development.
In recent years, most countries in the world including our country the Philippines, has already
implemented measures to help workers especially females to balance work and family responsibilities,
and providing workplace incentives for the provision of childcare and parental leave.

5. Modern transportation

Note: Since the economy is tied to production and consumption, and we make these possible
through importing and exporting materials such as goods and raw materials, that’s why a
measurement on Modern Transportation of a country plays a vital role. Imports and Exports are
indicators of country’s GDP.

Features and Characteristics

1. Economic Development is a continuous process

Note: Since Economic Development deals with improving the quality of human lives such as reducing
gender inequality or eliminating poverty, this is a multidimensional process which deals with different
and ongoing phenomena in the world. As long as there are needs that we still haven’t met, and
developmental issues unresolved, economic development is still necessary.
2. Boosts national income

Note: It is a fact that when the income of a person will increase the national income of a country will
also increase, that’s why these factors act like a domino effect in economic development. Example of
that here in the Philippines, is the rise of tourist and travel industry that exposes the country’s
breathtaking sceneries and beautiful beaches like Boracay and Palawan that attracts foreign investors,
thus generating more income for the country.

3. Economic Development improves the standard of living

- As I’ve mentioned earlier, a country’s per capita income is an indicator of economic prosperity, and
when that happens, there will be an increase in the purchasing power of a person. In the case of PH,
there has been a decline of people’s purchasing power due to the rise of oil/gas prices which led to the
inflation of products, goods and other services. Most of us are forced to cut down our consumption of
certain expensive foods or material things just to get by.

4. Economic Development helps to utilize national resource property

Note: National resource property are what builds opportunities, business expansion and create
jobs for people. Countries must utilize these natural and physical resources to reach its full
potential. Like in the Philippines, being an archipelago, have optimized the development of
marine resources and land, we produce different plant-based goods, we are one of the highest
exporter of banana, and foreign visitors enjoy travelling through our countries to explore our
diverse marine life.

5. Economic Development results in structural changes

Note: Based on what we’ve learned in history, there has been a dramatic shift between the nature of
work we used to have before as compared to what we have now in the digital era. A major factor in
these shifts is innovation, a byproduct of economic development. We used to focus on manufacturing
and agricultural industry but now, we have already moved to knowledge-based work and services in the
fields of technology. People are now venturing into businesses and being their own boss.

6. Economic Development leads to social-economic equality

Note: To repeat what I’ve said earlier, the lower the country’s inequality, the better its economic
development.
Next, six groups of trends can be identified which have an impact in the future on the economic
performance of a city or region:

 Structure of the Economy

Economic structure is a term that describes the changing balance of output, trade, incomes and
employment drawn from different economic sectors – ranging from primary (farming, fishing,
mining etc) to secondary (manufacturing and construction industries) to tertiary and quaternary
sectors (tourism, banking, software industries). Changes in economic structure are a natural
feature of economic life but they bring challenges in terms of reallocating factors of production. 

 Economy in Relation to Technology

Technology encompasses a huge body of knowledge and tools that ease the use of economic
resources as a way to produce goods and services efficiently and innovatively. Technological
progress is essential to economic growth and development, and the more advanced the
technology available, the more quickly the local and global economy can improve. Technology's
role in economic development is further broken down below.
Time is Money
Technology can save the time it takes to produce a good or deliver a service, contributing to the
overall profits of a business.
Efficiency
Technology can contribute to the efficiency of a business's output rate, allowing for larger
quantities of products to be moved or of services to be rendered.
Specialization
Technology has lead to an increase in the division of labor and specialization of jobs within a
business, further contributing to the efficiency with which a business is able to run.
Natural Resources
Technology has a huge effect on the ability of businesses and governments to access natural
resources and use them in the most effective ways possible to benefit both the business and the
economy.
Industrial Expansion
Thanks to the increased efficiency of labor with the ever-improving state of technology,
businesses are able to increase total output, which in turn leads to higher profits and greater
economic development.
Research
Better technology has lead to further research into nearly every sector of business and science,
meaning businesses can benefit from all sorts of technological advancements.
The Internet and International Trade
Information technology is the single most important element in the success and growth of
international trade and job market growth, allowing businesses to share information and
conduct trade in less time than the blink of an eye.
 Economy in Relation to Demography

Demographic change can influence the underlying growth rate of the economy, structural
productivity growth, living standards, savings rates, consumption, and investment; it can
influence the long‐run unemployment rate and equilibrium interest rate, housing market trends,
and the demand for financial assets.

 Economy in Relation to Social Cultural Trends

Every society has a set of values, beliefs, traditions, and habits known as their sociocultural
values. These values shape how we approach risk, how we view careers, our perceptions of
money, and our ideas of an ideal lifestyle

 Economy in Relation to Politics and Society

Stable Government is a condition of Economic Development

Politics determines Economic Goals

Political Ideology determines the Economic System

State solves Economic Problems

Budget

 Economy in Relation to Ecology

Human economics and ecology are inextricably linked, and here is why: as living organisms, we
live in the earth’s biosphere and depend on our ecosystems in order to survive. Our ecosystem,
the earth, ultimately controls our economic systems because it provides us with what we need
for our economies (and everything else) to actually exist. For example, we must have water,
food, and goods that we then buy, sell, or trade with others in order to profit economically. If
our sources were depleted, our economy would suffer. 
NEDA

NEDA is involved in the formation of national and sub-national policies, plans and programmes. The
agency reviews, monitors and evaluates infrastructure projects, in addition to undertaking short-term
policy reviews that provide critical analyses of development issues and policy alternatives to decision-
makers. NEDA has also been instrumental in stimulating the generation and use of evidence in policy-
making. It plays a central role in mobilising and coordinating other government departments in
stimulating impact evaluation.

During the Duterte Administration, October 11,2016, Pres. Digong Signed the EO. # 5

References:

https://hardeebusiness.com/resources/technologys-role-in-economic-development

https://www.onlineschoolsreport.com/how-are-human-economics-and-ecology-linked/

https://caled.org/economic-development-basics/
https://www2.gov.bc.ca/gov/content/employment-business/economic-development/plan-and-
measure/economic-development-basics/where-to-start/model/commissions
https://en.wikipedia.org/wiki/Economic_development
https://www.marketing91.com/economic-development/
https://pidswebs.pids.gov.ph/CDN/EVENTS/2_carreon_presentation_sti.pdf
https://www.officialgazette.gov.ph/downloads/2016/10oct/20161011-EO-5-RRD.pdf
https://www.3ieimpact.org/about-us/members/national-economic-and-development-
authority-philippines
 DEVELOPMENT FINANCE
Development finance is the efforts of local communities to support, encourage and catalyze expansion
through public and private investment in physical development, redevelopment and/or business and
industry.

So in other words, Development Finance, this is when financial insitutions grants local communities raise
to invest in businesses, industries in order to encourage development. Whatever development projects
that they have planned for, development finance would make it happen by granting financial supports.

It is the act of contributing to a project or deal that causes that project or deal to materialize in a
manner that benefits the long-term health of the community.

So in larger scope, development finance is when financial institutions grant loans and capitals to the
government for the implementation of infrastructure projects, properties, establishments that would
benefit the local community.

And the word itself, it financies developments.

Development finance requires programs and solutions to challenges that the local business, industry,
real estate and environment creates.

Components
Development financing can be defined as sources of finance separate from the domestic private sector. 
It can be broken down into four components, each of which contributes to both objectives of meeting
needed public finance and external financing for growth:

o Revenues of developing country governments themselves (these also reduce external financing
needs when public savings go up);

o Development projects

o Concessional development assistance, both external grants and concessional credits, that may
fund public or philanthropic expenditures, or catalyze growth-enhancing private financing;
 o Concessional loans: These are loans that are extended on softer terms than market
loans, either through interest rates below those available on the market or by grace
periods, or a combination of these. Concessional loans typically have long grace periods.

o Non-concessional loans taken out by (or guaranteed by) developing country governments, from
international financial institutions or private sources, typically used for infrastructure or other
revenue generating projects;

o Non-concessional loans: These are loans, typically used in relation to MDBs, with a

market-based interest rate and substantially less generous terms than concessional
loans.

o Private external finance, in the form of foreign direct investment (FDI) and other portfolio flows,
mostly targeted to growth objectives rather than social objectives.

o Low income countries relied on external financing for just under one-half of their total
development financing, and the share gets progressively lower as countries get richer;  

o CDA is of considerable importance in low income countries, but becomes progressively smaller
as a share of finance as countries get richer;

o About half of CDA goes to low income countries; but even upper middle-income countries
receive substantial amounts of CDA ($11 billion in 2011);

o All country groupings receive significant amounts of private finance. There is no indication that
relative shares of private finance change much as countries get richer over time;[3]
o Within private finance, FDI is the most important component for all countries, and most
countries, including many low income countries, receive significant flows of FDI;
 o Public and publicly guaranteed loans from all international financial institutions and other
sources are comparatively small in every income category.

Government revenues are the largest source of development financing and prospects for continued
increases are good.

Important Functions of Development Banks

Development banks have been started with the motive of increasing the pace of industrialization. The
traditional financial institutions could not take up this challenge because of their limitations. In order to
help all round industrialization development banks were made multipurpose institutions. Besides
financing they were assigned promotional work also. Some important functions of these institutions are
discussed as follows:

1. Financial Gap Fillers

Development banks do not provide medium-term and long-term loans only but they help industrial
enterprises in many other ways too. These banks subscribe to the bonds and debentures of the
companies, underwrite to their shares and debentures and, guarantee the loans raised from foreign and
domestic sources. They also help undertakings to acquire machinery from with in and outside the
country.

2. Undertake Entrepreneurial Role

Developing countries lack entrepreneurs who can take up the job of setting up new projects. It may be
due to lack of expertise and managerial ability. Development banks were assigned the job of
entrepreneurial gap filling. They undertake the task of discovering investment projects, promotion of
industrial enterprises, provide technical and managerial assistance, undertaking economic and technical
research, conducting surveys, feasibility studies etc. The promotional role of development bank is very
significant for increasing the pace of industrialization. Tagan opportunity mag encourage
entrepreneurial

3. Commercial Banking Business

Development banks normally provide medium and long-term funds to industrial enterprises. The
working capital needs of the units are met by commercial banks. In developing countries, commercial
banks have not been able to take up this job properly. Their traditional approach in dealing with lending
proposals and assistance on securities has not helped the industry. Development banks extend financial
assistance for meeting working capital needs to their loan if they fail to arrange such funds from other
sources. So far as taking up of other functions of banks such as accepting of deposits, opening letters of
credit, discounting of bills, etc. there is no uniform practice in development banks.

4. Joint Finance
Another feature of development bank’s operations is to take up joint financing along with other financial
institutions. There may be constraints of financial resources and legal problems (prescribing maximum
limits of lending) which may force banks to associate with other institutions for taking up the financing
of some projects jointly. It may also not be possible to meet all the requirements of a concern by one
institution, So more than one institution may join hands. Not only in large projects but also in medium-
size projects it may be desirable for a concern to have, for instance, the requirements of a foreign loan
in a particular currency, met by one institution and under writing of securities met by another.

5. Refinance Facility

Development banks also extend refinance facility to the lending institutions. In this scheme there is no
direct lending to the enterprise. The lending institutions are provided funds by development banks
against loans extended’ to industrial concerns. In this way the institutions which provide funds to units
are refinanced by development banks. In India, Industrial Development Bank of India(IDBI) provides
reliance against term loans granted to industrial concerns by state financial corporations. commercial
banks and state co-operative banks.

6. Credit Guarantee

The small scale sector is not getting proper financial facilities due to the clement of risk since these units
do not have sufficient securities to offer for loans, lending institutions are hesitant to extend them loans.
To overcome this difficulty many countries including India and Japan have devised credit guarantee
scheme and credit insurance scheme. In India, credit guarantee scheme was introduced in 1960 with the
object of enlarging the supply of institutional credit to small industrial units by granting a degree of
protection to lending institutions against possible losses in respect of such advances. In Japan besides
credit guarantee, insurance is also provided. These schemes help small scale concerns to avail loan
facilities without hesitation.

7. Underwriting of Securities

Development banks acquire securities of industrial units through either direct subscribing or
underwriting or both. The securities may also be acquired through promotion work or by converting
loans into equity shares or preference shares. So development banks may build portfolio999s of
industrial stocks and bonds. These banks do not hold these securities on a permanent basis. They try to
disinvest in these securities in a systematic way which should not influence market prices of these
securities and also should not lose managerial control of the units.

Development banks have become world wide phenomena. Their functions depend upon the
requirements of the economy and the state of development of the country. They have become well
recognized segments of financial market. They are playing an important role in the promotion of
industries in developing and underdeveloped countries.

In the Philippines, development financing institutions play a pivotal role in the quest for sustainable growth
and development. And at the helm of the country’s march toward progress is the Development Bank of the
Philippines. As the country’s pre-eminent development financial institution, DBP has taken upon itself the
strategic task of influencing and accelerating sustainable economic growth, through the provision of
resources, for the continued well-being of the Filipino people.

References:

https://www.dbp.ph/about-dbp/

https://www.mbaknol.com/business-finance/important-functions-of-development-banks/

https://www.cdfa.net/cdfa/cdfaweb.nsf/pages/df.html