What’s it: Economic development refers to the progress of an economy in terms of quality. It’s not just about economic growth. It also talks about the multidimensional aspects of a country, such as increasing per capita income, improving education and health, and reducing poverty and inequality.
Economic development also discusses how a country is transitioning from an agriculture-based to an industrial-based economy and advancing technology. And lastly, it all contributes to a general increase in the standard of living of the population.t
Definition of economic development
Hollis Chenery and Moises Syrquin: “Systematic variation in any significant aspect of the economic or social structure associated with increasing levels of income or other development indices.”
Michael Paul Todaro: “A multidimensional process involving reorganization and reorientation of the entire economic and social system.”
United Nations: “Multidimensional efforts to achieve a higher quality of life for all, through social, economic and environmental development.”
Cambridge Dictionary: “The process by which an economy grows and becomes more advanced, from both economic and social dimensions.”
Karl Seidman: “The process of creating and utilizing physical, human, financial and social assets to produce economic prosperity and a better quality of life and are broadly shared for a community or region.”
Daphne Greenwood and Richard Holt: “Broad-based and sustainable improvement of living standards for individuals in the community as a whole.”
Economic development goals
Development is more than just talking about increasing income or increasing the economy’s number of goods and services. It is not only about growing the economy but also how that growth benefits citizens.
Development takes into account inclusive welfare, better standards of living for all citizens. It’s also about building capacity and resilience in a fast-changing and unpredictable world.
Some of the goals of economic development:
- Increase the availability of goods and services. It talks about production and how to expand the distribution of essential life-sustaining goods such as food and drink, shelter, education, health, and protection.
- Increase per capita income. Income is one way to become more prosperous. Also, better education and the provision of more jobs are other important goals. Development must also place more significant attention on cultural and human values. So, prosperity here does not only take the material dimension but also immaterial.
- Promote the freedom to make responsible economic and social choices. Individuals and nations must be free from slavery, ignorance, and misery.
An increase in average life expectancy is an example of an outcome of economic development. Other outcomes are increased productivity, higher literacy rates, and better public education.
Difference between economic growth and economic development
Economic growth emphasizes production, consumption, and income. At least it is reflected in how economists measure gross domestic product (GDP).
The economy produces outputs of goods and services to meet needs. Households consume them to fulfill their needs and wants. Likewise, businesses use capital goods to help in the production process.
Businesses aim to make a profit. They recruit labor and pay wages, which is a source of income for the household. From their income, individuals use it to buy goods and services from businesses.
If production increases, the economy grows. Conversely, if it decreases, the economy contracts. It is all reflected in changes in GDP from time to time.
Meanwhile, economic development discusses economic and social aspects more broadly, not only those aspects above. It also talks about how the economy is increasing the standard of living and welfare of its population. Thus, it is not only about increasing production, consumption, and income, but also about other aspects of welfare, including reducing poverty and economic inequality.
Development directs the economy and citizens towards a better life. It works by creating more jobs and income, increasing access to goods and services, education and health care services, encouraging citizens’ economic and social freedom and choice.
So, economic growth becomes the foundation for economic development. Through economic growth, the economy creates more jobs and income. Goods and services increase, are more varied and of higher quality. It all allows citizens to fulfill their various needs and wants. And because of that, their people’s standard of living should improve.
However, economic growth does not always lead to economic development. Say an economy is growing high. The benefits may not be distributed equally among all citizens, but only to the owners of capital. That, in turn, creates income and wealth inequality. High growth does not reduce poverty and unemployment or improve essential social services such as education, health, and sanitation.
Besides, high growth often comes at the expense of the environment. Exploitative behavior causes environmental degradation, and problems arise, such as waste and global warming. It may benefit the current generation but become a burden for future generations.
In short, the success of economic development should be reflected in the improvements in the following variables:
- Income per capita (GDP per capita)
- Educational literacy
- Access to health services
- Quality and availability of housing and sanitation
- Environmental standard level
- Technology advances
- Life expectancy
- Poverty level
- Women’s rights
- Income distribution
- Infrastructure and transportation conditions
Economic development stages
The stages of economic development involve the following three transitions:
- Structural transformation
- Demographic transition
You can observe the economic structure of the composition of GDP by economic sector. Transformation means how the composition changes over time.
Initially, the economy relied on the agricultural sector (primary sector). Industrialization then developed. The manufacturing sector (secondary sector) began to take a more significant role in the economy and GDP.
In subsequent developments, the service sector (tertiary sector) grew and began to shift the other two sectors’ roles.
This is related to changes in population composition. In the early stages, the fertility rate is high. However, the death rate is also high due to inadequate health facilities and services. Thus, life expectancy is also low. As a result, population growth at the start of economic development was relatively limited. This usually happens in traditional economies.
At a later stage, life expectancy increases. People have better access to health services. Also, their access to quality education has improved. As a result, the population is growing high, with the working-age population also relatively dominating. Developing countries are usually at this stage.
The next stage is low population growth. Although life expectancy continues to increase, the birth rate is low. Also, the composition of the population is starting to age. This characteristic is usually attached to developed countries.
When the economy relies on agriculture, rural areas become centers of production. Industrialization then began to shift the growth centers. Urban centers emerged and attracted more people to move from the countryside. They expect to get better opportunities in the city, both in terms of income, education, and health access.
At the next stage, cities are increasingly developing—population density increases. Office centers have sprung up. Maybe you will also see a stark gap between rich and poor people. Environmental and social pressures also increase in urban areas.
What to read next
- Economic Development: Meaning, Goals, and Stages
- Economic Growth: Factors, Importance, Impacts, How to Measure It
- Income Distribution: How to Measure and Overcome Inequality
- Human Development Index: Indicators, Ranking, Benefits, Limitations
- Gini Coefficient: Meaning, Calculation Method, Data, Pros, and Cons
- Economic Growth and Economic Development: Their Differences and Relationships