Economic Development: Definition, Characteristics & Theories
Economic development
Economic development is the improvement of living standards in general, which includes an improvement of the economy in all its aspects, emphasizing the fair and equitable distribution of what is produced.
It implies improvement in social and institutional aspects and circular changes where there is a domino effect. A change in one sector causes changes in others, it’s a self-sustaining improvement, as can be seen, it’s a more comprehensive concept than economic growth.
Economic development results in equal economic, social and political opportunities for all social classes, those who were marginalized become actors in the development of the nation.
In summary, economic development, as Sergio de la Peña puts it, not only takes into account material and social advances, but also takes into account the obstacles that arise in the process of social evolution.
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Theories of economic development
Economic development is explained through different theories that have different approaches and are the following:
Development as a synonym for industrialization
The nations in which a high standard of living and well-being have been achieved are those in which a high level of industrialization has been reached and manufacturing has expanded, according to this, societies can be underdeveloped or traditional and industrial or developed societies.
Development as an economic process
This theory focuses on the effect of investment on the growth of gross domestic product, consumption and employment. It’s highly influenced by Keynesian thought, specially in dealing with the issue of development because investment is one of the basic problems of underdeveloped countries.
Development as a structural change process
Development requires a set of structural reforms of the government who acts as a guide, promoter, and planner of development, specifically when it has to do with financing and international trade.
Development as a process with defined stages
This theory adopts an inductive method because the authors observe characteristics of the developing process and make those characteristics the basis of interpretation. They make propositions that explain the state of development and draw conclusions that results in the policies to be applied.
Here comes the theory of the stages of economic growth of Rostow, Hildebran and Germani, which considers development as a sequence of historical stages that developed countries have gone through today fulfilled.
According to this, the 5 stages of economic development are: 1) traditional society, 2) preconditions to take-off, 3) take-off, 4) drive to maturity and 5) age of high mass consumption.
Differences between growth and economic development
The difference between growth and economic development is that growth much more focused on the indicators of economic activity and refers to the use of the productive potential of a country that translates into goods and services.
Economic development refers to a broader improvement and well-being that manifests itself in greater equality and social justice, a fairer distribution of national income and improvement of social aspects.
See more: Differences between growth and economic development
Economic development and underdevelopment
Underdevelopment is an economic situation where there is inequality in the distribution of wealth and there is also a waste of productive potential, and this set of phenomena generates poverty, financial dependence and social problems.
Underdevelopment is the opposite of development and authors try to explain it through different theories, some focus on per capita income, others on the ability to exploit natural resources, etc. Each term presupposes an approach to the issue and an economic program to solve it.
See also: Economic underdevelopment
See also