Economic Development

                  

Economic development

           Economic development is a broader concept than economic growth. Development reflects social and economic progress and requires economic growth. Growth is a vital and necessary condition for development, but it is not a sufficient condition as it cannot guarantee development.

  

         Economic Development is the creation of wealth from which community benefits are realized. It is more than a jobs program, it’s an investment in growing your economy and enhancing the prosperity and quality of life for all residents.

 

       Economic development means different things to different people. On a broad scale, anything a community does to foster and create a healthy economy can fall under the auspice of economic development.

 

    From a public perspective, local economic development involves the allocation of limited resources – land, labor, capitol and entrepreneurship in a way that has a positive effect on the level of business activity, employment, income distribution patterns, and fiscal solvency.

It is a process of deliberate intervention in the normal economic growth by making it easier or more attractive. Today, communities in California are giving attention to what they can do to promote fiscal stability and greater economic development.

 

         Community development is a concerted effort on the part of the responsible governing body in a city or county to influence the direction of private sector investment toward opportunities that can lead to sustained economic growth. Sustained economic growth can provide sufficient incomes for the local labor force, profitable business opportunities for employers and tax revenues for maintaining an infrastructure to support this continued growth. There is no alternative to private sector investment as the engine for economic growth, but there are many initiatives that you can support to encourage investments where the community feels they are needed the most.

It is important to know that economic development is not community development. Community development is a process for making a community a better place to live and work. Economic development is purely and simply the creation of wealth in which community benefits are created. There are only three approaches used to enhance local economic development. They are:

 

Business Retention and Expansion – enhancing existing businesses

Business Expansion – attracting new business

Business Creation – encouraging the growth of new businesses

 

What is Economic Growth?

    1.1     Economic growth is the increase of per capita gross domestic product (GDP) or other measures of aggregate income, typically reported as the annual rate of change in real GDP. 

 

     Source Of Economic Growth

        Difference countries have different level of economic development.

                     i.        Productivity

                    ii.        Factor production (natural resource)

                   iii.        Tehnology advance

                  iv.        High rate of social, polical and ideological transformation

 

   What is Economic Development?

    Economic development is the increase in the standard of living in a nation's population with sustained growth from a simple, low-income economy to a modern, high-income economy.

 

    Source of Economic Development

                     i.        Labor force
                    ii.        Technology
                   iii.        Capital
                  iv.        Natural resource
                    v.        Land
                  vi.        Education and knowledgeable skill

 

Economic growth and development

        We have started our discussion of development by addressing very broad issues relating to the concept of development. However, much of the literature and thinking about 'development' focuses on economics. Indeed 'development' and 'economic development' have often been treated as synonymous concepts. The economic development of a country or society is usually associated with (amongst other things) rising incomes and related increases in consumption, savings, and investment.

    Of course, there is far more to economic development than income growth; for if income distribution is highly skewed, growth may not be accompanied by much progress towards the goals that are usually associated with economic development.         

    Clearly not all developed countries exhibit all these characteristics in equal measure. And, some of you might even question the presence of certain items in the above list, pointing perhaps to countries (or regions within them) in which, for example, crime and employment levels appear to be quite high, or highlighting the fact that not everyone has access to good public services, housing and so on. Some of these points are clearly open to debate. For instance crime levels in the rural areas of many developing countries where most people live are often much lower than in some of the urban population centres of developed countries. Nonetheless, the above list is probably fairly indicative of the characteristics that distinguish countries that are economically developed from those that are not.

Economic growth

   From the answer to the previous question you will have noticed that the listed characteristics once again say more about goals than the processes or mechanisms for achieving them. So what drives a country towards achieving these goals? The orthodox view, espoused by most governments, most major international organisations, and the economists that advise them, is that a big part of the answer lies in economic growth.

    However, economic growth can follow many different paths, and not all of them are sustainable. Indeed, there are many who argue that given the finite nature of the planet and its resources, any form of economic growth is ultimately unsustainable. We shall leave these debates for later. For now let us look at what exactly economic growth is and how it is measured.

    Economists usually measure economic growth in terms of gross domestic product (GDP) or related indicators, such as gross national product (GNP) or gross national income (GNI) which are derived from the GDP calculation. GDP is calculated from a country's national accounts which report annual data on incomes, expenditure and investment for each sector of the economy. Using these data it is possible to estimate the total income earned in the country in any given year (GDP) or the total income earned by a country's citizens (GNP or GNI).

    GNP is derived by adjusting GDP to include repatriated income that was earned abroad, and exclude expatriated income that was earned domestically by foreigners. In countries where inflows and outflows of this sort are significant, GNP may be a more appropriate indicator of a nation's income than GDP.

There are three different ways of measuring GDP

• the income approach
• the output approach
• the expenditure approach

    The income approach, as the name suggests measures people's incomes, the output approach measures the value of the goods and services used to generate these incomes, and the expenditure approach measures the expenditure on goods and services. In theory, each of these approaches should lead to the same result, so if the output of the economy increases, incomes and expenditures should increase by the same amount. 

Figures for economic growth are usually presented as the annual percentage increase in real GDP. Real GDP is calculated by adjusting nominal GDP to take account of inflation which would otherwise make growth rates appear much higher than they really are, especially during periods of high inflation.

Short-term versus long-term growth

A distinction needs to be made between short-term growth rates and longer term ones. It is quite normal for short-term growth rates to fluctuate in line with the business cycle. This can be seen in the two figures in 1.2.1 representing GDP growth in the US between 1930 and 2003.

 

 

     According to the measures of GDP and growth shown here, growth in recent decades has fluctuated between zero and 5% per annum. Clearly, based on long-term trends, growth rates exceeding 5% (as measured here) would seem to be unsustainable. When politicians are talking about sustainable growth they are often referring to macroeconomic concerns relating to the cycle of boom and bust.

    An economic boom involves high growth rates and is often accompanied by rising inflation. It is often followed by a period of lower growth rates and recession ('bust'). Sustainable growth in this context relates to stable growth rates that even out the fluctuations in the business cycle, thus avoiding high peaks and the large troughs associated with recessions. Note that this is different from the issues that environmentalists typically focus upon when they discuss the sustainability of economic growth. We shall say more on this later.

Related

• GDP and development
• Harrod-Domar Growth model
• Does GDP measure economic development?
• Causes of economic growth