Economic Development is the process by which emerging economies become advanced economies. In other words, the process by which countries with low living standards become nations with high living standards. Economic development also refers to the process by which the overall health, well-being, and academic level of the general population improve.
During the development, there is a population shift from agriculture to industry, and then to services.
Economic development also fosters innovation and technological advancements, leading to the creation of new industries and job opportunities.
A longer average life expectancy, for example, is one of the results of economic development. Improved productivity, higher literacy rates, and better public education are also consequences.
Put simply; economic development is all about improving living standards. ‘Improved living standards’ refers to higher levels of education and literacy, workers’ income, health, and lifespans.
The Cambridge Dictionary has the following definition of the term:
“The process in which an economy grows or changes and becomes more advanced, especially when both economic and social conditions are improved.”
Development economics is a field of economics that examines economic development.
Economic development vs. growth
Although the terms economic development and economic growth cover similar concepts, they are not the same.
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Economic growth
Economic growth is all about expanding GDP, i.e., making the size of the economy bigger. GDP stands for gross domestic product.
GDP is the sum of all economic activity in a nation over a specific period. It is the net value of all the products and services that an economy produces.
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Economic development
Development, on the other hand, looks at a much wider range of statistic than simply GDP or GDP per capita. GDP per capita is GDP divided by the total population.
Economic development looks at how the citizens of a country are affected. Apart from their living standards, it also looks at the freedom they have to enjoy those living standards.
Economic development takes into account the following information:
- Average life expectancy, i.e., how long people people’s lifespans are.
- Education standards.
- Literacy rates, i.e., what percentage of the population can read.
- Environmental standards.
- Availability of housing, plus the quality of housing.
- Access to healthcare. This takes into account the number of doctors per thousand people, access to affordable medicine, etc.
- Income per capita.
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Growth is not enough
Economic growth is a crucial condition for development. However, just growth is not enough because it cannot guarantee development.
Amartya Kumar Sen, an Indian economist and philosopher, who received the Nobel Memorial Prize in Economic Sciences, once said:
“Economic development is about creating freedom for people and removing obstacles to greater freedom. Greater freedom enables people to choose their own destiny.”
“Obstacles to freedom, and hence to development, include poverty, lack of economic opportunities, corruption, poor governance, lack of education and lack of health.”
Economic development – example
Let’s suppose there are two countries, Fairland and Unfairland. The two countries have exactly 1,000 people each. These countries are fictitious extremes.
Looking just at GDP
Unfairland’s GDP is $40 million, while that of Fairland is $21 million.
Unfairland’s and Fairland’s GDP per capita are $40,000 and $21,000 respectively.
If we just look at GDP per capital, Unfairland appears to be a richer country. However, we do not know whether it is more economically developed.
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Taking into account other features
Mr. Greed, Unfairland’s richest person, received $39 million of the country’s $40 million GDP. Mr. Posh, Fairland’s richest person, received $1 million of the country’s $21 million GDP.
If we take out the richest person in each country, GDP per capita is:
- Unfairland: $1,000
- Fairland: $20,000
In Fairland, 99% of the population is literate, while in Unfairland it is 60%. Fairland has free universal healthcare. In Unfairland, on the other hand, only half the population has access to affordable health care.
For every mile of road and railway track in Unfairland, Fairland has 6 miles and 11 miles respectively.
Average life expectancy in Fairland is eight years longer than in Unfairland.
Therefore, as far as economic development is concerned, Fairland is way ahead of Unfairland.
The equitable distribution of income in Fairland underscores the importance of wealth distribution in assessing a nation’s economic development. Additionally, Fairland’s investment in renewable energy sources highlights its commitment to sustainable development, further setting it apart from Unfairland.
Compound nouns with “economic”
“Economic Development” is a compound noun – a term consisting of two or more words. There are many compound nouns that contain the word “economic.” Here are eight of them, their meanings, and how we can use them in a sentence:
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Economic Climate
The economic climate refers to the overall state of the economy, encompassing various economic indicators like growth rates, unemployment, inflation, and consumer confidence.
Example: “The economic climate has been improving, with lower unemployment rates and increased consumer spending.”
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Economic Risk
Economic risk involves the potential for losses due to changes in the economy, such as inflation, exchange rates, or recession.
Example: “Companies face economic risk when expanding into new markets, as fluctuating currency values can impact profits.”
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Economic Life
Economic life is the expected period during which an asset remains useful to the owner or within an economy, often influencing depreciation methods.
Example: “The economic life of the machinery is estimated to be about 10 years before it needs replacement.”
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Economic Surplus
Economic surplus is the difference between what consumers are willing to pay for a good or service and the market price, encompassing consumer and producer surplus.
Example: “The introduction of new technology increased the economic surplus by reducing production costs and lowering prices for consumers.”
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Economic Equilibrium
Economic equilibrium is a state where market supply equals demand, with no external forces causing disruption, leading to stable prices and quantities.
Example: “After months of volatility, the market reached an economic equilibrium, stabilizing the prices of essential commodities.”
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Economic Bias
Economic bias refers to a systematic deviation in judgment or decision-making where economic outcomes or perspectives are unfairly favored or neglected.
Example: “The policy demonstrated an economic bias toward urban areas, neglecting the needs of rural communities.”
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Economic Crisis
An economic crisis is a period of significant decline in the economy, characterized by a downturn in economic activity, high unemployment, and financial instability.
Example: “The 2008 global financial meltdown led to an economic crisis, affecting economies around the world.”
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Economic Cost
Economic cost includes the total cost of choices made, factoring in both the direct costs and the opportunity costs of forgoing the next best alternative.
Example: “The economic cost of attending college is not just tuition, but also the income students forego by not working full-time.”
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Economic Activity
Economic activity encompasses all actions that involve the production, distribution, and consumption of goods and services within an economy.
Example: “Government stimulus packages aimed to boost economic activity during the recession by increasing consumer spending and investment.”
Two Videos
These educational videos featured on our partner YouTube channel, Marketing Business Network, explain the meanings of ‘Economic Development’ and ‘Economic Growth,’ utilizing easy-to-understand language and examples.
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What is Economic Development?
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What is Economic Growth?