Economic Development

● programs, policies or activities that seek to improve the economic well-being and quality
of life for a community.
● also known as economic growth or advancement, refers to the generation of wealth that
is found in the benefit and advancement of society
● relies heavily on the efficient allocation of resources (a reason for the slow growth of
command economies)
● a branch of economics whose goal is to better the fiscal, economic, and social conditions
of developing countries
● seeks to understand and shape macro and microeconomic policies in order to lift poor
countries out of poverty

Five Stages of Economic Development

W.W. Rostows Stages of Economic Growth
Stage 1: Traditional Society
This is characterized by a subsistent agricultural-based economy with intensive labor and low
levels of trading, and a population that does not have a scientific perspective on the world and
technology.
Stage 2: Preconditions to Take-off
A society begins to develop manufacturing and a more national/international—as opposed to
regional—outlook.
Stage 3: Take-off
This stage is a short period of intensive growth, in which industrialization begins to occur, and
workers and institutions become concentrated around a new industry.
Stage 4: Drive to Maturity
This stage takes place over a long period of time, as standards of living rise, the use of
technology increases, and the national economy grows and diversifies.
Stage 5: Age of High Mass Consumption
In this stage, a country's economy flourishes in a capitalist system, characterized by mass
production and consumerism.

Types of Economic Development

1. Traditional Economy
● based on goods, services, and work, all of which follow certain established trends
● relies a lot on people, and there is very little division of labor or specialization
● commonly found in rural settings in second and third world nations, where economic
activities are predominantly farming or other traditional income-generating activities
● due to its small output, there is very little wastage compared to the other three systems
2. Command Economy
● there is a dominant centralized authority – usually the government – that controls a
significant portion of the economic structure
● also known as a planned system
● common in communist societies since production decisions are the preserve of the
government
 ● in theory, it works very well as long as the central authority exercises control with the
general population’s best interests in mind
● rigid compared to other systems
3. Market Economy
● based on the concept of free markets and the government exercises little control over
resources, and it does not interfere with important segments of the economy
● greatest downside is that it allows private entities to amass a lot of economic power,
particularly those who own resources of great value
● distribution of resources is not equitable because those who succeed economically
control most of them
4. Mixed Economy
● combine the characteristics of the market and command economy
● also known as dual system
● face the challenge of finding the right balance between free markets and government
control

Signs of Economic Development

1. Employment
● unemployment and employment figures are a very important indicator when deciding if
the economy is strong
2. Consumer Spending
● total money spent on final goods and services by individuals and households for
personal use and enjoyment in an economy
● can be regarded as complementary to personal saving, investment spending and
production in an economy
3. Consumer Sentiment
● An economic indicator that measures how optimistic consumers feel about their finances
and the state of the economy.
4. Bank Lending
● Process whereby banks issue loans to borrowers.
5. Shipping Activity
● Most people buy things that come from “someplace else”. Overall economic activity is
correlated with the movement of goods across the continent.

Importance of Economic Development

● A critical component that drives economic growth in an economy, creating new job
opportunities and facilitating an improved quality of life that includes increased access to
opportunities created by economic growth for existing and future residents.
● Job creation - Economic developers provide critical assistance and information to
companies that create jobs in our economy.
● Industry diversification - A core part of economic development works to diversify the
economy, reducing a region’s vulnerability to a single industry.
● Business retention - Economic developers work to retain and grow existing local
companies and assist companies with operational needs.
 ● Economy fortification - Economic development helps to protect the local economy from
economic downturns by attracting and expanding the region’s major employers.
● Tax revenue - More companies in the region translates to increased tax revenue for
community projects and local infrastructure.
● Improves quality of life - Better infrastructure and more jobs improves the economy of
the region and raises the standard of living for its residents.

Indicators of Economic Development

1. Gross Domestic Product (GDP) - is the standard measure of the value added created
through the production of goods and services in a country during a certain period
2. Gross National Product (GNP) - measures the output of a country's residents regardless of
the location of the actual underlying economic activity.
3. GNP per Capita - the sum of gross value added by all resident producers in the economy
plus any product taxes (less subsidies) not included in the valuation of output, divided by
mid-year population
4. Economic Growth - measured as an increase of people's real income – means that the ratio
between people's income and the prices of what they can buy is increasing
5. Inequality of wealth - the unequal distribution of assets among people and organizations
6. Inflation - measures how much more expensive a set of goods and services has become
over a certain period, usually a year.
7. Unemployment - a situation where a person actively searches for employment but is unable
to find work.
8. Economic Structure - a term that describes the changing balance of output, trade, incomes
and employment drawn from different economic sectors.
9. Demographic - the statistical characteristics of human populations (such as age or income)
used especially to identify markets