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Economic development is the increase in the standard of living of a nation's population with sustained

growth from a simple, low-income economy to a modern, high-income economy. Its scope includes the
process and policies by which a nation improves the economic, political, and social well-being of its

Gonçalo L Fonsesca at the New School for Social Research defines economic development as "the
analysis of the economic development of nations.

The University of Iowa's Center for International Finance and Development states that:

"'Economic development' or '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. 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.

The study of economic development by social scientists encompasses theories of the causes of industrial-
economic modernization, plus organizational and related aspects of enterprise development in modern
societies. It embraces sociological research on business organization and enterprise development from a
historical and comparative perspective; specific processes of the evolution (growth, modernization) of
markets and management-employee relations; and culturally related cross-national similarities and
differences in patterns of industrial organization in contemporary Western societies. On the subject of the
nature and causes of the considerable variations that exist in levels of industrial-economic growth and
performance internationally, it seeks answers to such questions as: "Why are levels of direct foreign
investment and labour productivity significantly higher in some countries than in others?

Mansell and Wehn state that development has been understood since the second World War to involve
economic growth, increases in per capita income, and attainment of a standard of living equivalent to that
of industrialized countries.
Economy Development can also be considered as a static theory that documents the state of 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.

Economic growth versus economic development

Economic development refers to social and technological progress. It implies a change in the way goods
and services are produced, not merely an increase in production achieved using the old methods of
production on a wider scale. Economic growth implies only an increase in quantitative output; it may or
may not involve development. Economic growth is often measured by rate of change of gross domestic
product (eg., percent GDP increase per year.) Gross domestic product is the aggregate value-added by the
economic activity within a country's borders.

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 important aspects such as leisure time,
environmental quality, freedom, or social justice; alternative measures of economic wellbeing have been

A country's economic development is related to its human development, which encompasses, among other
things, health and education.

Intensive versus extensive growth

A closely related idea is the difference between extensive and intensive economic growth. Extensive
growth is growth achieved by using more resources (land, labour and capital). Intensive growth is growth
achieved by using a given amount of resources more efficiently (productively). Intensive growth requires

Does growth create development?

Dependency theorists argue that poor countries have sometimes experienced economic growth with little
or no economic development; for instance, in cases where they have functioned mainly as resource-
providers to wealthy industrialised 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 (2000 we view economic growth to human development as a two-way relationship.
Moreover, Ranis suggested that the first chain consist of economic growth benefiting human development
with GNP. Namely, GNP increases human development by expenditure from families, government and
organizations such as NGOs. With the increase in economic growth, families and individuals will likely
increase expenditures with the increased in incomes, which leads to increase in human development.
Further, with the increased in expenditures, health, education tend to increases in the country and later will
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 social services, unequal income distribution will be limited as such social services are
distributed equally across each community; benefiting each individual. Thus, increasing living standards
for the public.

To summarize, as noted in Anand’s article (1993 we can view the relationship between human
development and economic development in three different explanations. First, increase in average income
leading to improved 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). Thirdly, (known as Capability Expansion through
Social Services), defines the improvement of social outcomes with essential services such as education,
health care, and clean drinking water.

Models of economic development

The 3 building blocks of most growth models are: (1) the production function, (2) the saving function, and
(3) the labor supply function (related to population growth). Together with a saving function, growth rate
equals s/β (s is the saving rate, and β is the capital-output ratio). Assuming that the capital-output ratio is
fixed by technology and does not change in the short run, growth rate is solely determined by the saving
rate on the basis of whatever is saved will be invested.
Harrod–Domar model

The Harrod–Domar model delineates a functional economic relationship in which the growth rate of gross
domestic product (g) depends positively on the national saving ratio (s) and inversely on the national
capital/output ratio (k) so that it is written as g = s / k. The equation takes its name from a synthesis of
analysis of growth by the British economist Sir Roy F. Harrod and the Polish-American economist Evsey
Domar. The Harrod–Domar model in the early postwar times was commonly used by developing
countries in economic planning. With a target growth rate, and information on the capital output ratio, the
required saving rate can be calculated.

Exogenous growth model

The exogenous growth model (or neoclassical growth model) of Robert Solow and others places emphasis
on the role of technological change. Unlike the Harrod-Domar model, the saving rate will only determine
the level of income but not the rate of growth. The sources-of-growth measurement obtained from this
model highlights the relative importance of capital accumulation (as in the Harrod–Domar model) and
technological change (as in the Neoclassical model) in economic growth. The original Solow (1957) study
showed that technological change accounted for almost 90 percent of U.S. economic growth in the late
19th and early 20th centuries. Empirical studies on developing countries have shown different results (see
Chen, E.K.Y.1979 Hyper-growth in Asian Economies).

Also see, Krugman (1994), who maintained that economic growth in East Asia was based on perspiration
(use of more inputs) and not on inspiration (innovations) (Krugman, P., 1994 The Myth of Asia’s Miracle,
Foreign Affairs, 73).

Even so, in our postindustrial economy, economic development, including in emerging countries is now
more and more based on innovation and knowledge. Creating business clusters is one of the strategies
used. One well known example is Bangalore in India, where the software industry has been encouraged by
government support including Software Technology Parks.

However, when looking at the growth rate put forward from the neoclassical growth model, it seems to
suggest that countries with same characteristics and technology will eventually converge to the same rate
of growth. However, one should know that the knowledge presented in countries that promotes
technological advancement is not stationary. Meaning that knowledge are linked to individual and not to
the country.

According to Lucas Jr (1988) to compensate the movment of knowledge, we should implement factors
such as labour factor to predict immigration flow. With labour movement coming into factor, we can then
predict the flow of knowledge which can then successfully lead to increase in technology.

Information-led development

Information-led development (ILD) most commonly refers to a development strategy whereby a

developing country makes as a primary economic policy focus the creation and development of a national
information technology (IT) sector with the express aim of relying on this sector as an engine of growth.
Notable examples of such countries are India and the Philippines.

More recently, a new formulation of ILD has emerged. With origins in community economic development
in the United States, the new ILD model describes the use of data to generate actionable information or
information solutions to development challenges. Examples of this include the inclusion of non-financial
payment obligations in consumer credit files, also known as alternative data, and the use of this
information in underwriting, as a means to reduce financial exclusion in the United States, where an
estimated 54 million Americans are shut out of mainstream credit access as there is insufficient
information about them in their credit files to be scored by a credit scoring model. This variant of ILD was
pioneered by PERC, a non-profit policy research organization and development intermediary
headquartered in Chapel Hill, North Carolina. Other US-based organizations, including Social Compact
and the Local Initiatives Support Corporation employ variants of ILD, but none has applied this
internationally except for PERC.

This development model is gaining traction in emerging markets such as Colombia and South Africa,
where the data is being used to reduce financial exclusion and facilitate credit access as a means to build
wealth and form assets. It is also attracting increasing attention from development agencies, including
USAID, the International Finance Corporation, the World Bank Group, and the Consultative Group to
Assist the Poor.
Regional policy

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 sustainable 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, small business development, business retention and expansion, technology transfer,
and real estate development. This third category is a primary focus of economic development

Economic developers

Economic development, which is thus essentially economics on a social level, 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 (EDOs) 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

With more than 20,000 professional economic developers employed world wide in this highly specialized
industry, the International Economic Development Council [IEDC] headquartered in Washington, D.C. is
a non-profit organization dedicated to helping economic developers do their job more effectively and
raising the profile of the profession. With over 4,500 members across the US and internationally, serving
exclusively the economic development community. Membership represents the entire range of the
profession ranging from regional, state, local, rural, urban, and international economic development
organizations, as well as chambers of commerce, technology development agencies, utility companies,
educational institutions, consultants and redevelopment authorities. Many individual states also have
associations comprising economic development professionals and they work closely with IEDC.

There is intense competition between communities, states, and nations for new economic development
projects in today's globalized world, and the struggle to attract and retain business is further intensified by
the use of many variations of economic incentives to the potential business such as; tax incentives, help
with investment capital, donated land and many others. IEDC places significant attention on the various
activities undertaken by economic development organizations to help them compete and sustain vibrant

Additionally, the use of community profiling tools and database templates to measure community assets
versus other communities is also an important aspect of economic development. Job creation, economic
output, and increase in taxable basis are the most common measurement tools. When considering
measurement, too much emphasis has been placed on economic developers for "not creating jobs."
However, the reality is that economic developers do not typically create jobs, but facilitate the process for
existing businesses and start-ups to do so. Therefore, the economic developer must make sure that there
are sufficient economic development programs in place to assist the businesses achieve their goals. Those
types of programs are usually policy-created and can be local, regional, statewide and national in nature.