Concepts and

Approaches of
Economic
Development
Economic Development
• Economic Development is programs, policies or activities that seek to improve the economic well-being and
quality of life for a community.
• Economic development is the process by which the economic well-being and quality of life of a nation,
region, local community, or an individual are improved according to targeted goals and objectives
In its broadest sense, policies of economic development encompass three major areas:
• Governments undertaking to meet broad economic objectives such as price stability, high employment,
and sustainable growth. Such efforts include monetary and fiscal policies, regulation of financial
institutions, trade, and tax policies.
• Programs that provide infrastructure and services such as highways, parks, affordable housing, crime
prevention.
• Job creation and retention through specific efforts business finance, marketing, neighborhood
development, workforce development, small business development, business retention and expansion,
technology transfer, and real estate development. This third category is a primary focus of economic
development professionals.
Economic Growth
 Economic growth refers to an increase in the size of a country's economy over a period
of time. The size of an economy is typically measured by the total production of goods
and services in the economy, which is called gross domestic product (GDP).
 Economic growth can be measured in ‘nominal’ or ‘real’ terms. Nominal economic
growth refers to the increase in the dollar value of production over time.
 Economic growth can be defined as the increase or improvement in the inflation-adjusted market
value of the goods and services produced by an economy in a financial year.
Economic Development vs
Economic Growth
Economic Growth Economic Development
Focus on the increase in GDP Focus on improving living standards.
Measures the quantitative aspect of growth. Considers qualitative improvements.
Reflects short-term changes in output. Considers long-term sustainability.
Emphasizes production and consumption. Emphasize equity and social welfare.
Narrowly focused on economic factors. Considers social, political and cultural aspects.
Measurements of Economic
Development
• GNP:
 GNP is commonly calculated by taking the sum of personal consumption expenditure, private domestic
investment, govt. expenditure, net exports and any income earned by residents from overseas investments,
minus income earned within the domestic economy by foreign residents.
 Net exports represent the difference between what a country exports minus any imports of goods and
services.
 GNP measures the total monetary value of the output produced by a country’s residents.
 Any output produced by foreign residents within the country’s borders must be excluded in calculations of
GNP.
 Per capita income
 Per capita income is a measure of the amount of money earned per person in a nation or geographic region.
 PCI can be used to determine the average per-person income for an area and to evaluate the standard of living
and quality of life of the population.
 Per capita income for a nation is calculated by dividing the country’s national income by its population .
 Consumption per capita
Consumption per person is a good indicator of development. The richer a country is, the more its citizens
consume.
 Urbanization
Urbanization is the percentage of a country's population who live in urban areas. Urban areas generally means
in towns and cities of 2,500 or more people. Currently just less than half of the worlds population live in urban
areas. Generally as countries develop, urbanization increases.
 Social Conditions
There are many other measures of economic development. Many refer to the social conditions of a country.
Here is a short list.
• literacy rate
• life expectancy
• health care
• infant mortality
• other
Alternative measures of Economic
Development
Physical Quality of Life Index (PQLI)
• The physical quality of life index is an attempt to measure the quality of life or well being.
• It considers the value is the average of the three statistics: basic literacy rate, infant mortality, and life
expectancy.
• It was developed for the overseas Development Council in the mid-1970s by Morris David Morris.
• It helps to understand the overall welfare in the economy and how well its welfare policies are being
implemented. This helps the government to take corrective action.
• The method followed to measure PQLI is standard for all the countries. Therefore, it can be used to
make comparisons between countries and this helps the relatively underdeveloped countries to take
corrective measures.
Human Development Index (HDI)
• HDI is a statistic developed and compiled by the United Nations to measure and various countries’ level of
social and economic development.
• It is composed of three principal areas of interest: mean years of schooling, life expectancy at birth, and gross
national income per capita.
• The index is a tool used to follow changes in development levels over time and to compare the development
levels of different countries.
• The Human Development Index (HDI) is a summary measure of average achievement in key dimensions of
human development: a long and healthy life, being knowledgeable and having a decent standard of living
Determinants of Development
• Two major determinants are
Economic Factor
Non-Economic Factor
These two determining the pace of the economic development of the
economy
Economic Factor
• Economic Environment:
 an important determinant that can help to determine the pace of the
economic development as well as the economic growth. This economic
environment is influenced by the economic factors like
 Population and manpower resources
 Natural resources and its utilization.
 Capital formation and capital accumulation.
 Favorable investment pattern.
 Occupational structure.
 Technological Advancement.
Non-Economic Factor
• Economic factors alone are not sufficient for determining the process
of economic development in a country. In order to attain economic
development, proper social and political climate must be provided.
• Development is not governed in any country by economic forces
alone and the more backward the country, the more this is true. The
key to development lies in men’s minds, in the institutions in which
their thinking finds expression and in the play of opportunity on ideas
and institutions.
Some of the important non-economic factors are:
1. Political-legal Environment
The political-legal environment of the country is also an important determinant of economic development.
Political stability and legal support for developmental activities create better environment for development.
Reforms in the form of industrial policy reforms, labor reforms etc should be enacted through proper
legislation.

2. Changes in social and institutional factors

Conservative and rigid social and institutional set up like joint family system, caste system, traditional
values of life, irrational behavior etc put severe obstacle on the path of economic development and also
retards its pace. Thus to bring social and institutional changes as per changing environment and to realize
the modern values of life are very much important for accelerating the pace of economic development in a
country.
3. Urge for Development
It is mental urge for development of the people in general that is playing an important determinant for initiating
and accelerating the process of economic development. In order to attain economic progress, people must be
ready to bear both the sufferings and convenience. Experimental outlook, necessary for economic environment
must grow with the spread of education.
Challenges of economic Growth
• High rates of unemployment or underemployment.
• Increasing inequality, with many not being included in the growth process.
• High rates of poverty and low growth.
• Volatile growth dependent on one source.
• Disruption of major economic activities due to the pandemic, e.g. tourism.
• Macroeconomic instability and recurrent balance of payments shocks.
• Low productivity due to poor human capital development.
• Skills mismatch between skills you have and the jobs you want to create.
• Lack of quality jobs; high levels of informality in the economy.
Factors of Economic Growth
• There are four factors of economic growth. These are
Land
Labor
Capital
Entrepreneurship
How Does Technology Impact Economic Growth?

Technology is a key driver to economic growth by making production

processes quicker and more efficient. Increased efficiencies translate
to an increase in output. This means that companies are able to
produce more goods and services in a shorter amount of time.
Technology often leads to automation in the production of goods and
services, which often translates to a reduction in jobs.