What is Economic Development

 

Economic Development

Economic Development means the continuous increase in a country's real income over a long period. It is the process by which the economic well-being and quality of life of a nation, region, or community are improved. Economic development is also discussed with technical and industrial changes in society. Economic development includes increasing income levels, improving infrastructure, enhancing education and healthcare, and fostering innovation and entrepreneurship.

It typically involves efforts to increase wealth, create jobs, reduce poverty, and improve standards of living. Economic development is often considered a broad concept that encompasses several key elements, including:

GDP growth (Gross Domestic Product): A rise in the value of goods and services produced within a region, which is an indicator of a growing economy.

Infrastructure Improvement: Developing and upgrading physical infrastructure (such as transportation, electricity, and communication networks) to support economic activities.

Education and Healthcare: Investments in education, healthcare, and social services to improve human capital, thereby enhancing productivity and quality of life.

Industrialization and Diversification: Encouraging the growth of new industries, technology, and sectors to reduce dependency on a single industry, thus creating a more resilient economy.

Job Creation: Reducing unemployment and underemployment by providing new work opportunities, thereby increasing income levels and improving economic mobility.

Poverty Reduction: Ensuring that the benefits of economic growth are distributed more equitably, helping to lift people out of poverty.

Environmental Sustainability: Balancing economic growth with environmental protection, ensuring that development does not deplete natural resources or harm the environment for future generations.

Economic Growth

Sometimes people confuse the concept of economic development with economic growth, but there are differences between them. Economic growth represents an increase in the production of goods and services of a country. It is typically measured by the change in Gross Domestic Product (GDP) from one period to another. It is associated with an increase in the efficiency of production factors. Economic growth is often considered in the short to medium term and can be driven by factors like investment increases, technological improvements, or labor forces.

Key aspects of economic development;

1. Increase in GDP:

• An increase in GDP signifies that an economy is growing and producing more goods and services. If GDP grows, it means that the total value of all goods and services produced in the economy has increased.

2. Productivity Improvement:

• Economic growth often comes from higher productivity, which is the efficiency with which resources (labor, capital, and technology) are used in the production of goods and services. Productivity improvements can result from technological advances, better management practices, or increased capital investment.

3. Investment and Capital Formation:

• Investments in physical capital (like infrastructure, machinery, and factories) and human capital (education and skills training) are important drivers of economic growth. As businesses and governments invest more in these areas, they increase the economy's productive capacity.

4. Labor Force Growth:

• A growing labor force, whether from population growth or increased participation, can also contribute to economic growth. More workers generally mean more output, though productivity (output per worker) is also crucial to sustaining growth.

5. Technological Innovation:

• Developing and applying new technologies can boost economic growth by making production processes more efficient, lowering costs, or creating entirely new industries.

The Difference Between "Economic Growth and Economic Development"

Qualitative and Quantitative:

Economic development is related to qualitative changes in economic wants, goods, incentives, and institutions. Economic growth is a sustained quantitative increase in the country's per capita output or income.

Duration:

Economic growth is a short-term process as compared to economic development. It can be measured every year as it shows only income changes, while economic development is a long-term process and takes many years to change social, economic, and institutional setups.

Self-reliance:

Economic development leads to the policy of self-reliance and reduces dependence on other countries. Economic growth does not lead to self-reliance, and there is dependence on other countries.

Policies aimed at economic growth often stimulate investment, increase production, improve labor productivity, and encourage trade. Governments might also pursue fiscal and monetary policies to encourage growth.

Policies for economic development are broader and include promoting education, healthcare, job creation, and sustainable growth. Governments may focus on policies that reduce inequality, promote environmental protection, and ensure equitable access to resources and opportunities.

Vision:

Economic development has a broader concept as it implies more, particularly improvement in health, education, and other aspects of human welfare. Economic growth has a narrower concept than economic development, as it is defined as the increase in the value of goods and services produced by every sector of the economy. It is usually expressed in terms of the gross domestic product or GDP of the country.

Numerical Measure:

Economic development can be experienced and cannot be numerically measured. It usually incorporates social measures such as literacy rates or life expectancy to measure a country's level of development. Economic growth can be measured numerically. It is measured by comparing income levels of different years.

Living Standard: 

In the context of economic growth, living standards may increase if the economy grows in a way that boosts average income or employment. However, economic growth does not inherently guarantee improvements in living standards for everyone. It focuses more on quantitative measures like output, income levels, and wealth generation.

Economic development is a broader and more inclusive concept. It not only includes growth in economic output but also improves the quality of life and living standards for the population. Economic development encompasses social, cultural, and political progress, aiming to reduce poverty, increase equality, improve healthcare, expand educational opportunities, and enhance overall well-being.

Welfare-oriented:

Economic growth can increase the total wealth of a country, but it does not necessarily translate into improvements in welfare for everyone. Growth may increase income and job opportunities in certain sectors or for certain groups, but it can also result in widening inequality, environmental degradation, and social exclusion if the benefits of growth are not widely distributed.

Economic development specifically seeks to improve the well-being of all people in society, particularly by addressing inequality, poverty, healthcare access, and education. It aims to create a more inclusive society where the benefits of economic growth are shared widely, and everyone has the opportunity to live a healthier, more prosperous life.

Final Destination:

Economic development is a country's final destination. After achieving economic development, a country just has to maintain it. However, economic growth is a mediator phase of economic development.

In essence, while economic growth is about increasing economic output, economic development is about improving people's overall well-being. Growth is often seen as a component of development, but development goes beyond mere growth to encompass broader social progress.