What's Economic Development - Simply Explained


Economic development is a broader concept than economic growth. The 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.

By 2017, the world population had grown to 7,500 million (7.5bn) (Source: world meters).  According to the Population Reference Bureau, it took just 12 years for the global population to increase from 6 to 7bn. Of this number, only 15% will achieve a standard of living of at least 50% of that achieved in the USA. According to the World Bank over 20% of the world’s population lives on less than $1 a day. The majority subsists at a standard of living like, or lower than, that typically achieved 10,000 years ago. During the next 50 years, the world population is predicted to grow to 9,000 million, and at this rate, the proportion of those impoverished is likely to increase.

Also read: Stages of economic growth

Indicators of Development

The extent to which a country has developed may be assessed by considering a range of narrow and broad indicators, including per capita income, life expectancy, education, and the extent of poverty.

Look into this article to know about economic growth.

The Human Development Index (HDI)

The HDI was introduced in 1990 as part of the United Nations Development Programme (UNDP) to provide a means of measuring economic development in three broad areas – per capita income, health, and education. The HDI tracks changes in the level of development of countries over time.

Each year, the UNDP produces a development report, which provides an update of changes during the year, along with a report on a special theme, such as global warming and development, and migration and development. The introduction of the index was an explicit acceptance that development is a considerably broader concept than growth and should include a range of social and economic factors.

According to the World Bank, life expectancy at birth in developing countries over the past 40 years has increased by 20 years. However, these increases were not evenly distributed. Indeed, in many countries in sub-Saharan Africa, life expectancy is falling due to the AIDS epidemic.

Adult Literacy

The percentage of those aged 15 and above who can read and write a simple statement on their everyday life. More extensive definitions of literacy include those based on the International Adult Literacy Survey. This survey evaluates the ability to understand the text, interpret documents, and perform basic arithmetic.

GDP per Capita

GDP per capita is the commonest indicator of material standards of living and hence is included in the index of development. GDP per capita is found by measuring Gross Domestic Product in a year and dividing it by the population.

Evaluation of the HDI

Despite the widespread use of the HDI, several criticisms can be made, including:

  1. The HDI index is for a single country, and as such does not distinguish between different rates of development within a country, such as between urban and traditional rural communities.

  2. Critics argue that the equal weighting between the three main components is rather arbitrary.

  3. Development is largely about freedom, but the index does not directly measure this. For example, access to the internet might be regarded by many as freedom which improves the quality of people's lives.

  4. As with the narrow measure of living standards, GDP per capita, there is no indication of the distribution of income.

  5. Besides, the HDI excludes many aspects of economic and social life that could be regarded as contributing to or constraining development, such as crime, corruption, poverty, deprivation, and negative externalities.

  6. GDP is calculated in terms of purchasing power parity, and the value can change.

Economic Development Debut

Economic development, the process whereby simple, low-income national economies are transformed into modern industrial economies. Although the term is sometimes used as a synonym for economic growth, generally it is employed to describe a change in a country’s economy involving qualitative as well as quantitative improvements. The theory of economic development—how primitive and poor economies can evolve into sophisticated and relatively prosperous ones—is of critical importance to underdeveloped countries. 

Economic development first became a major concern after World War II. As the era of European colonialism ended, many former colonies and other countries with low living standards came to be termed underdeveloped countries, to contrast their economies with those of the developed countries, which were understood to be Canada, the United States, those of western Europe, most eastern European countries, the then Soviet Union, Japan, South Africa, Australia, and New Zealand. As living standards in most poor countries began to rise in subsequent decades, they were renamed the developing countries.

Also read: Economic and social development

There is no universally accepted definition of what a developing country is; neither is there one of what constitutes the process of economic development. Developing countries are usually categorized by a per capita income criterion, and economic development is usually thought to occur as per capita incomes rise. A country’s per capita income (which is almost synonymous with per capita output) is the best available measure of the value of the goods and services available, per person, to the society per year. Although there are several problems of measurement of both the level of per capita income and its rate of growth, these two indicators are the best available to provide estimates of the level of economic well-being within a country and of its economic growth.

Written By - Mohammed Ghattas

Edited By - Sravanthi Cheerladinne

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