What is economic development? Definition and examples

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 the general population improves.

During the development, there is a population shift from agriculture to industry, and then to services.

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
Wikipedia says: “Economic development is the process by which a nation improves the economic, political, and social well-being of its people.”

Economic development vs. growth

Although the terms economic development and economic growth cover similar concepts, they are not the same.

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.

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.
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.

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 is Fairland is eight years longer than in Unfairland.

Therefore, as far as economic development is concerned, Fairland is way ahead of Unfairland.