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Economic development is the sustained, concerted actions of policy makers and
communities that promote the standard of living and economic health of a
specific area. Economic development can also be referred to as the quantitative
and qualitative changes in the economy. Such acts can involve multiple areas
including development of human capital, critical infrastructure, regional
competitiveness, social inclusion, health, safety, literacy, and other initiatives.
Economic development differs from economic growth. Whereas economic
development is a policy intervention endeavor with aims of economic and social
well-being of people, economic growth is a phenomenon of market productivity
and rise in GDP. Consequently, as economist Amartya Sen points out,
"economic growth is one aspect of the process of economic development."
Type
The scope of economic development includes the process and policies by which
a nation improves the economic, political, and social well-being of its people.
The University of Iowa's Center for International Finance and Development
states that:
'Economic development' is a term that economists, politicians, and others have
used frequently in the 20th century. The concept, however, has been in
existence in the West for centuries. Modernization, Westernisation, and
especially Industrialisation are other terms people have used while discussing
economic development. Economic development has a direct relationship with
the environment.
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Although nobody is certain when the concept originated, most people agree that
development is closely bound up with the evolution of capitalism and the
demise of feudalism.
Mansell and When also state that economic development has been understood
since the World War II to involve economic growth, namely the increases in per
capita income, and (if currently absent) 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 time. According to Schumpeter (2003), the changes in this equilibrium
state to document in economic theory can only be caused by intervening factors
coming from the outside.
History
Economic development originated in the post war period of reconstruction
initiated by the US. In 1949, during his inaugural speech, President Harry
Truman identified the development of undeveloped areas as a priority for the
west:
“More than half the people of the world are living in conditions approaching
misery. Their food is inadequate, they are victims of disease. Their economic
life is primitive and stagnant. Their poverty is a handicap and a threat both to
them and to more prosperous areas. For the first time in history humanity
possesses the knowledge and the skill to relieve the suffering of these people ...
I believe that we should make available to peace-loving peoples the benefits of
our store of technical knowledge in order to help them realize their aspirations
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for a better life… What we envisage is a program of development based on the
concepts of democratic fair dealing ... Greater production is the key to
prosperity and peace. And the key to greater production is a wider and more
vigorous application of modem scientific and technical knowledge."
There have been several major phases of development theory since 1945. 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. Neo-
liberalism 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 borne out of an
extension to traditional economics that focused entirely on national product, or
the aggregate output of goods and services. Economic development was
concerned in the expansion of people’s entitlements and their corresponding
capabilities, morbidity, nourishment, literacy, education, and other socio-
economic indicators. Borne out of the backdrop of Keynesian, advocating
government intervention, and neoclassical economics, stressing reduced
intervention, with rise of high-growth countries (Singapore, South Korea, Hong
Kong) and planned governments (Argentina, Chile, Sudan, Uganda), economic
development, 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.
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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.
Growth and development
Dependency theorists argue that poor countries have sometimes experienced
economic growth with little or no economic development initiatives; for
instance, in cases where they have functioned mainly as resource-providers to
wealthy industrialized countries. There is an opposing argument, however, that
growth causes development because some of the increase in income gets spent
on human development such as education and health.
According to Ranis et al., economic growth and development is a two-way
relationship. According to them, the first chain consists of economic growth
benefiting human development, since economic growth is likely to lead families
and individuals to use their heightened incomes to increase expenditures, which
in turn furthers human development. At the same time, with the increased
consumption and spending, health, education, and infrastructure systems grow
and contribute to economic growth.
In addition to increasing private incomes, economic growth also generate
additional resources that can be used to improve social services (such as
healthcare, safe drinking water, etc.). By generating additional resources for
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social services, unequal income distribution will be mitigated as such social
services are distributed equally across each community, thereby benefiting each
individual. Concisely, the relationship between human development and
economic development can be explained in three ways. First, increase in
average income leads to improvement in health and nutrition (known as
Capability Expansion through Economic Growth). Second, it is believed that
social outcomes can only be improved by reducing income poverty (known as
Capability Expansion through Poverty Reduction). Lastly, social outcomes can
also be improved with essential services such as education, healthcare, and
clean drinking water (known as Capability Expansion through Social Services).
John Joseph Puthenkalam's research aims at the process of economic growth
theories that lead to economic development. After analyzing the existing
capitalistic growth-development theoretical apparatus, he introduces the new
model which integrates the variables of freedom, democracy and human rights
into the existing models and argue that any future economic growth-
development of any nation depends on this emerging model as we witness the
third wave of unfolding demand for democracy in the Middle East. He develops
the knowledge sector in growth theories with two new concepts of 'micro
knowledge' and 'macro knowledge'. Micro knowledge is what an individual
learns from school or from various existing knowledge and macro knowledge is
the core philosophical thinking of a nation that all individuals inherently
receive. How to combine both these knowledge would determine further growth
that leads to economic development of developing nations.
Yet others believe that a number of basic building blocks need to be in place for
growth and development to take place. For instance, some economists believe
that a fundamental first step toward development and growth is to address
property rights issues, otherwise only a small part of the economic sector will be
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able to participate in growth. That is, without inclusive property rights in the
equation, the informal sector will remain outside the mainstream economy,
excluded and without the same opportunities for study.
Goals
In the United States, Project Socrates outlined competitiveness as the driving
factor for successful economic development in government and industry. By
addressing technology directly, to meet customer needs, competitiveness was
fostered in the surrounding environment and resulted in greater economic
performance and sustained growth.
Economic development typically involves improvements in a variety of
indicators such as literacy rates, life expectancy, and poverty rates. GDP does
not take into account other aspects such as leisure time, environmental quality,
freedom, or social justice; alternative measures of economic well-being have
been proposed. Essentially, a country's economic development is related to its
human development, which encompasses, among other things, health and
education. These factors are, however, closely related to economic growth so
that development and growth often go together. Due to globalization growth and
development in those countries are interrelated to trends on international trade
and participation in Global Value Chains (GVCs) 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
markets in developing countries more resilient by providing a variety of
financial institutions. This could also add to financial security for small-scale
producers.