Economic development

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. [2] 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, Westernization, and especially Industrialization are other terms people have used when discussing economic development. conomic development has a direct relationship with the environment. Although no one is sure when the concept originated, most people agree that development is closely bound up with the evolution of capitalism and the demise of feudalism. [3]

Mansell and Wehn 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. 4][5] 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. [6] History [edit] Economic development originated in the post war period of reconstruction initiated by the US. During his 1949 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.

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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 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”[7] 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 Import Substitution Industrialization (ISI), emphasizing comparative advantage. Cite error: A set of ;ref; tags are missing the closing ;/ref; (see the help page). 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. [1]

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. [9] 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 [edit] 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. (2000), economic growth and human development is a two-way relationship.

Moreover, the first chain consists of economic growth benefiting human development with GNP. Specifically, GNP increases human development by expenditure from families, government and organizations such as NGOs. With the rise in economic growth, families and individuals will likely increase expenditures with heightened incomes, which in turn leads to growth in human development.

Further, with the increased consumption, health and education grow, also contributing to economic growth. 10] 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 social services, unequal income distribution will be mitigated as such social services are distributed equally across each community, thereby benefiting each individual. Thus, increasing living standards for the public. [11] 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). [12] 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. For further reading, please refer to “Integrating Frem, Democracy and Human Rights into Theories of Economic Growth” & other publications(1998,2000&2010). 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 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. Goals [edit] 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. [13] 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 (more).

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. [14] Regional policy [edit] Diagram of key components of a strong regional cluster, U. S. Economic Development Administration [2] 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 ustainable 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. The cluster of similar industries, specialties, skilled laborforce, and technologies help lower transaction costs and foster a growing environment of commerce, entrepreneurship, exports, and other market productive activities.

Additionally, local services such as restaurants, stores, and trades experience growth as well, helping to develop a vibrant region for the wider community. [15] Even the U. S. ’s Economic Development Administration recognizes the importance of clusters with their continued Regional Innovation Clusters initiative which aims to “create jobs and grow the economy” through the geographic concentrations of industries and firms in their need for talent, technology, and infrastructure. [16] International trade and exchange rates are a key issue in economic development.

Currencies are often either under-valued or over-valued, resulting in trade surpluses or deficits. Organization [edit] Economic development 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 (EDO’s) 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. There are numerous other organizations whose primary function is not economic development work in partnership with economic developers. They include the news media, foundations, utilities, schools, health care providers, faith-based organizations, and colleges, universities, and other education or research institutions.