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What Is Development Economics?

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Development Economics Definition and Types Explained

Investopedia / Sydney Saporito

Development economics is a branch of economics  that focuses on improving fiscal, economic, and social conditions in developing countries . Development economics considers factors such as health, education, working conditions, domestic and international policies, and market conditions with a focus on improving conditions in the world's poorest countries.

The field also examines both macroeconomic and microeconomic factors relating to the structure of developing economies and domestic and international economic growth .

Key Takeaways

• Development economics is a branch of economics whose goal is to better the fiscal, economic, and social conditions of developing countries.
• Areas that development economics focuses on include health, education, working conditions, and market conditions.
• Development economics seeks to understand and shape macro and microeconomic policies in order to lift poor countries out of poverty.
• The application of development economics is complex and varied as the cultural, social, and economic frameworks of every nation is different.
• Four common theories of development economics include mercantilism, nationalism, the linear stages of growth model, and structural-change theory.

Understanding Development Economics

Development economics studies the transformation of emerging nations into more prosperous nations. Strategies for transforming a developing economy tend to be unique because the social and political backgrounds of countries can vary dramatically. Not only that, but the cultural and economic frameworks of every nation is different also, such as women's rights and child labor laws.

Students of economics, and professional economists, create theories and methods that guide practitioners in determining practices and policies that can be used and implemented at the domestic and international policy level.

Some aspects of development economics include determining to what extent rapid population growth helps or hinders development, the structural transformation of economies, and the role of education and healthcare in development.

They also include international trade, globalization , sustainable development, the effects of epidemics, such as HIV, and the impact of catastrophes on economic and human development.

Prominent development economists include Jeffrey Sachs, Hernando de Soto Polar, and Nobel Laureates Simon Kuznets, Amartya Sen , and Joseph Stiglitz.

Types of Development Economics

Mercantilism.

Mercantilism is thought to be one of the earliest forms of development economics that created practices to promote the success of a nation. It was a dominant economic theory practiced in Europe from the 16th to the 18th centuries. The theory promoted augmenting state power by lowering exposure to rival national powers.

Like political absolutism and absolute monarchies, mercantilism promoted government regulation by prohibiting colonies from transacting with other nations.

Mercantilism monopolized markets with staple ports and banned gold and silver exports. It believed the higher the supply of gold and silver, the more wealthy it would be. In general, it sought a trade surplus (exports greater than imports), did not allow the use of foreign ships for trade, and it optimized the use of domestic resources.

Economic Nationalism

Economic nationalism reflects policies that focus on domestic control of capital formation , the economy, and labor, using tariffs or other barriers. It restricts the movement of capital, goods, and labor.

Economic nationalists do not generally agree with the benefits of globalization and unlimited free trade . They focus on a policy that is isolationist so that the industries within a nation are able to grow without the threat of competition from established companies in other countries.

The economy of the early United States is a prime example of economic nationalism. As a new nation, it sought to develop itself without relying so much on outside influences. It enacted measures, such as high tariffs, so its own industries would grow unimpeded.

Linear Stages of Growth Model

The linear stages of growth model was used to revitalize the European economy after World War II.

This model states that economic growth can only stem from industrialization . The model also agrees that local institutions and social attitudes can restrict growth if these factors influence people's savings rates and investments.

The linear stages of growth model portrays an appropriately designed addition of capital partnered with public intervention. This injection of capital and restrictions from the public sector leads to economic development and industrialization.

Structural-Change Theory

The structural-change theory focuses on changing the overall economic structure of a nation, which aims to shift society from being a primarily agrarian one to a primarily industrial one.

For example, Russia before the communist revolution was an agrarian society. When the communists overthrew the royal family and took power, they rapidly industrialized the nation, allowing it to eventually become a superpower.

What Is Development Economics Used for?

Development economics is the study of how emerging nations become more financially stable. It can be used as a tool for students and economists working to develop policies that can be used in creating domestic and international policy.

What Is the Goal of Development Economics?

Ultimately, the study of development economics is meant to help better the financial, economic and social circumstances in developing countries through the enactment of certain structures and policies.

What Are the 4 Main Topics in Development Economics?

The topics, or types of development economics include mercantilism, economic nationalism, linear stages of growth model, and structural-change theory.

Development economics examines things like the structure of domestic and international economies in order to improve conditions in developing countries. There are many theories of development economics. While mercantilism, nationalism, linear stages of growth, and structural-change theory are four of the most common, this field of study continues to develop and change.

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Economic Development: Definition, Scope, and Measurement

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• Prabha Panth 8  

Part of the book series: Encyclopedia of the UN Sustainable Development Goals ((ENUNSDG))

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The concepts “development” and “underdevelopment” are ambiguous, and for decades they have been the subject of endless debates and discussions. There is no clear picture or definition of what actually constitutes “economic underdevelopment” or how to achieve it, as it is an evolving concept, and keeps altering over time.

Broadly, economic development is taken to be the structural transformation of an economy by introducing more mechanized and updated technologies to increase labor productivity, employment, incomes, and standard of living of the population. Economic development should be accompanied by improvements in infrastructure, as well as social, political, and institutional factors to facilitate transformation of the economy (Myint and Krueger 2016 ).

Economic development is regarded as important for a country to reduce its poverty by providing more employment, higher incomes, improved goods and services, and latest technologies of production. [ news.orlando.org/blog/ ]...

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Prabha Panth

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Panth, P. (2020). Economic Development: Definition, Scope, and Measurement. In: Leal Filho, W., Azul, A.M., Brandli, L., Lange Salvia, A., Özuyar, P.G., Wall, T. (eds) No Poverty. Encyclopedia of the UN Sustainable Development Goals. Springer, Cham. https://doi.org/10.1007/978-3-319-69625-6_38-1

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DOI : https://doi.org/10.1007/978-3-319-69625-6_38-1

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Planning for Economic Development

This page provides information to help local governments in Washington State plan for economic development, including reference guides and examples of local economic development plans.

When planning for economic development, the goal is to create and maintain a strong, vibrant local economy. Local government economic development planning is part of a region's overall economic development strategy and involves intergovernmental coordination. The economic development plan provides a comprehensive overview of the economy, sets policy direction for economic growth, and identifies strategies, programs, and projects to improve the economy.

General Information on Economic Development Planning

The following publications and guides provide useful background on the economic development planning process.

• Washington State Department of Community, Trade, and Economic Development:  Learning to Lead: A Primer on Economic Development Strategies  (1999) - General overview of the major issues related to economic development; older but still useful. The Department of Community, Trade, and Economic Development is now called the Department of Commerce. 
• Wisconsin Economic Development Institute, Inc.: A Guide to Preparing the Economic Development Element of a Comprehensive Plan  (2003) - Wisconsin has a “Smart Growth Law,” similar to Washington's Growth Management Act; this is one of few general guides on this topic.

Examples of Economic Development Plans and Elements

The Washington Growth Management Act (GMA) emphasizes county-wide coordination of economic development planning, and economic development is one of the elements of a growth management comprehensive plan (see RCW 36.70A.070 (7)). The requirement for an economic development element was conditioned on the availability of state funds, which have not been provided to date.

Many jurisdictions have, however, prepared an economic element of their comprehensive plan. Local governments have prepared other types of economic development plans, including strategic action plans and plans targeted at downtown areas. The following are selected examples of these plans.

GMA Economic Development Plans

• Bothell Economic Development Element  (2015)
• Lewis County Economic Development Element (2018)
• Mukilteo Economic Development Element  (2021)
• Oak Harbor Economic Development Element  (2016) 
• Tumwater Economic Development Plan  (2019)

Strategic Action and Other Economic Development Plans

• Benton County Economic Development Plan (2022) 
• Enumclaw Strategic Plan for Economic Development  (2014) 
• Hoquiam  Economic Development Strategic Action Plan  (2009) 
• Kitsap Economic Development Alliance: Annual Plan Overview (2022) 
• University Place Economic Development Strategic Action Plan (2012)
• West Richland Economic Development Plan  (2013)
• Woodinville Economic Development Plan  (2022)

Comprehensive Economic Development Strategy

A comprehensive economic development strategy (CEDS) is a strategic planning document and planning process that helps guide the economic growth and development of communities and regions. The CEDS is required by the federal Economic Development Administration (EDA) in areas designated as economic development districts and for certain EDA grant funds, including grants for public works and economic development. The preparation of an economic development plan can also improve access to other federal, state, and private aid programs.

The following documents provide advice for developing CEDS and examples:

• U.S. Economic Development Administration: Comprehensive Economic Development Strategy (CEDS) Overview  
• Puget Sound Regional Council:  Regional Economic Development Strategy for the Central Puget Sound Region
• Skagit Council of Governments:  Comprehensive Economic Development Strategy  - Includes 2003 CEDS plus 2013 supplements.

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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 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.

Economic growth

Economic growth is all about expanding GDP, i.e., making the size of the economy bigger. GDP stands for g ross d omestic p roduct .

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 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:

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.”

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.”

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.”

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.”

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.”

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.”

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.”

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.”

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.”

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.

What is Economic Development?

What is Economic Growth?

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• What is an Economic Development Plan?
• Economic Development Planning: Where To Start
• Strategic Planning Toolkit
• Performance Measurement Toolkit
• B.C. Assembly of First Nations Economic Development Toolkits

What is Economic Development?

Economic Development is programs, policies or activities that seek to improve the economic well-being and quality of life for a community.

What “economic development” means to you will depend on the community you live in. Each community has its own opportunities, challenges, and priorities.  Your economic development planning must include the people who live and work in the community.

On this page learn:

• Economic development strategies
• What is an economic development practitioner?
• Who is responsible for economic development work?
• What is an economic development organization?
• Foundation for successful economic development

Economic Development Strategies

Though economic development priorities vary, economic development strategies often aim for common, positive results, such as:

• Creating more jobs and more job variety
• Keeping businesses and getting new ones
• A better quality of life
• More people and businesses paying taxes
• More productive use of property
• Promoting your community’s assets
• Making and selling more local products
• Getting more skilled workers living in your community

Use the Strategic Planning Toolkit to develop a long term economic development plan

What is an Economic Development Practitioner?

Just like economic development is different for communities, so are the economic development practitioners that support them. Generally, an economic development practitioner:

• Plans, designs, and delivers economic development strategies.
• Acts as an important connection between public and private sectors and the community.
• Takes part in economic development planning and sometimes leads or gives input into the policy-making process.
• Administers policy, programs, and projects.

Who is Responsible for Economic Development work?

Many people doing economic development work are economic development practitioners or Economic Development Officers or “EDOs” for short. Some people don’t hold the official title in their job, but are doing economic development work all the time.

Lots of different groups can work in economic development, including:

• Local Indigenous and non-Indigenous governments
• Chambers of commerce
• Technology or business incubators
• Regional development agencies
• Community colleges, universities and research institutions
• Provincial and Federal governments
• Special authorities (like airports, ports, etc.)
• Not-for-profits & humanitarian organizations
• Business and industry associations
• Workforce development organizations
• Neighbourhood groups
• Utilities providers (help with business attraction and growth)

Their role in a community can include:

• Leading economic development planning
• Working toward the community’s mandate or vision for economic development
• Supporting sector relationships
• Communicating and responding to economic development concerns and opportunities
• Leading projects to enhance economic development
• Providing accountability, ensuring economic development isn't an afterthought

What is an Economic Development Organization?

Economic development organizations deliver programs, policies, and activities to improve the economic well-being of their communities.

There are many organizations, regional trusts and Crown corporations dedicated to the economic development of B.C.

• Find economic development organizations and groups to support your economic development efforts

Foundation for Successful Economic Development

Economic development work needs a strong community foundation. Three principals for your economic development activities to succeed are:

Community Support

It is important to have the support of your community for everything from project plans and budgets, to marketing and promotion – your community members are very important. 

Partnerships

Strong partnerships are essential to the success of your economic development activities. Partnerships will help to leverage resources, build capacity and encourage collaboration.

Preparedness 

Start with an economic development plan and get feedback and approval. Once community support and partnerships are in place you are ready to get started.

We know communities aren’t one-size-fits-all. Our aim is for these economic development resources  to support your community’s goals, whether you’re urban or rural, large or small, Indigenous or non-Indigenous.

Next Steps:

• Find out where to start the economic development planning process
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Making economic development strategies more strategic

Subscribe to the brookings metro update, ryan donahue and ryan donahue nonresident fellow - brookings metro @rmdonahue brad mcdearman brad mcdearman nonresident senior fellow - brookings metro.

August 24, 2017

By all appearances, economic development organizations (EDOs) approach the task of creating regional strategies very seriously. The process, which occurs roughly every five years, involves consultants, high-level steering committees, extensive research, and significant expense of energy and money. At the end of it all, new goals, metrics, and marketing campaigns are unveiled at major events. But beneath this frenzy of activity lies a problem: most strategies that EDOs create are actually not strategies at all.

To explain what we mean, we first need to define “strategy.” In a 1996 article, aptly titled “What is Strategy,” renowned economist and strategy guru Michael Porter outlined two basic principles intended for businesses but are equally relevant to EDOs: strategy requires making difficult trade-offs (choosing what not to do), and the ultimate goal is to establish a unique position . We’ve written about EDOs that have done just this–picking one or two truly globally-relevant specializations in which to make concerted, long-term investments. Examples include Syracuse (drones), Des Moines (insurance), Milwaukee (water technologies), or San Diego (life sciences). We’ve also written about places that, in the absence of clear specializations, have decided that the most strategic approach is to focus on capacity-building for mid-sized firms regardless of industry. Examples include PRISM in Northeast Ohio, Jumpstart’s Scaleup Services , and national lab voucher programs .

Why are these examples exceptional? Why do the majority of economic development strategies fail to meet Porter’s standard? It stems from the way that EDOs define their region’s “target” industries.

We start here because one of the most basic functions of EDOs is to selectively invest in capacities that make a region “sticky” for specific types of firms and talent, spurring a cycle of self-reinforcing growth in certain industries. (For proof that this is the dominant paradigm, look no further than nearly any region’s proclamation that it will become the “Silicon Valley” of something.) Nearly everything that an EDO does–from business attraction incentives, to workforce training to startup accelerators–should align to ensure that firms in some set of industries have to be in the region, whatever the cost. The point is that, when an EDO defines an industry as a “target,” it is making a claim about an industry specialization: either that one exists and should be protected, or that an emerging one could be deepened through targeted investments.

It follows that simply by choosing a reasonable set of target industries, an EDO should have a strategy that’s within striking distance of Porter’s definition–the chosen industries both define a region’s unique position and enable leaders to make difficult trade-offs between investment options. The opposite, however, is also true: choosing an unreasonable set of target industries could completely undermine an EDO’s ability to act strategically. The latter outcome is far more common. To illustrate, we looked at two regions for which we had access to the detailed, non-public economic data that their researchers used to define their target industries.

The first problem is that EDOs choose too many specializations (usually six to eight), each of which is too broadly defined (such as “advanced manufacturing”). To return to Porter’s phrase, EDOs fail to “choose what not to do.” This is clear from a quick scan of any EDO’s website, but the data offer confirmation. The target industries identified by the two metro areas that we looked at represented 74 percent of traded-sector jobs in one region and 59 percent of traded-sector jobs in the other (we use traded-sector as the baseline since EDOs don’t usually work in other parts of the economy, such as local government and retail). A strategy that “focuses” on half to three quarters of the entire regional economy simply fails to provide a way to harness the energy of local leaders, prioritize investments, or create concrete, actionable initiatives to reduce barriers to the industry’s growth. As economic activity becomes more concentrated in the U.S., including in the most desirable industries , the average region stands little chance of breaking through with the watered-down, distracted efforts that these strategies inevitably generate.

The second problem is a direct outcome of the first. By labeling such a broad swathe of the economy as a target, it’s inevitable that there will be substantial overlap with other regions’ specializations. It seems that every metro area we work with claims to specialize in not just overly broad industries, but the same broad industries: advanced manufacturing, life sciences, and food and beverage are nearly ubiquitous. Again, the data confirms this perception. The industries that the two metros defined as specializations represented nearly 400,000 jobs across both metros. Of those, over 270,000 jobs–or 68 percent of the total–were in industries that both metro areas claimed as specializations. Any pair of metros will have some overlap in their industrial makeup, but this level of duplication suggests that neither metro area has gotten anywhere close to establishing a “unique position.” They are sending generic signals into a crowded, noisy marketplace.

What keeps EDOs from doing this right? One explanation is that their leaders are timid. They prefer to avoid difficult strategic decisions, make every sector of the economy feel valued, and hope that opportunities will float their way despite their lack of strategy. Another is that many EDOs leave this research to consultants who lack in-depth knowledge of local industry dynamics, rather than doing the hard but necessary work of regularly convening and learning from firms. There are also, however, more benign explanations for why EDOs end up with muddled strategies: the academic research on specialization and economic performance is muddled. It’s not entirely clear whether it matters more if a region has a relative specialization–an industry that’s large compared to other industries within the region, even if small compared to other regions–or the opposite. It’s not even clear whether specialization or diversification is better for regional economies. Further, the notion of carving out unique industry-based niches is increasingly at odds with how the economy is organized–for decades, regions have become less specialized by sector and more specialized by function.

Given all of this confusion, is it reasonable for EDOs to do what we’ve described–hedge their bets and claim to have “diverse specializations”? No. It is possible to pursue both specialization and diversification and still be smart and strategic about it. But doing so means committing to making real choices–otherwise a strategy is just a wish list.

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