ECONOMIC DEVELOPMENT CONCEPTS

Traditionally economists have made little if any distinction between economic growth and economic
development using the terms almost synonymously.
As a concept, Economic development can be seen as a complex multi-dimensional concept involving
improvements in human well-being, however defined Critics point out that GDP is a narrow measure of
economic welfare that does not take account of important non-economic aspects eg more leisure time,
access to health & education, environment, freedom or social justice. Economic growth is a necessary but
insufficient condition for economic development.
Professor Dudley Seers argues development is about outcomes ie development occurs with the reduction
and elimination of poverty, inequality and unemployment within a growing economy.
Professor Michael Todaro sees three objectives of development:
Producing more life sustaining necessities such as food shelter & health care and broadening their
distribution
Raising standards of living and individual self esteem
Expanding economic and social choice and reducing fear.
The UN has developed a widely accepted set of indices to measure development against a mix of
composite indicators:
UN's Human Development Index (HDI) measures a country's average achievements in three basic
dimensions of human development: life expectancy, educational attainment and adjusted real income
($PPP per person).
UN's Human Poverty Index (HPI) measure deprivation using % of people expected to die before age 40,
% of illiterate adults, % of people without access to health services and safe water and the % of
underweight children under five.
Development economics emerged as a branch of economics because economists after World War II
become concerned about the low standard of living in so many countries of Latin America, Africa, and
Asia. There are, however, important reservations in making development economics as branch of
economics as opposed to the ultimate objective of the study of economics. The first approaches to
development economics assumed that the economies of the less developed countries (LDCs) were so
different from the developed countries that basic economics could not explain the behavior of LDC
economies. Such approaches produced some interesting and even elegant economic models, but these
models failed to explain the patterns of no growth, slow growth, or growth and retrogression found in the
LDCs.
Slowly the field swung back towards more acceptance that opportunity cost, supply and demand, and so
on apply to the LDCs also. This cleared the ground for better approaches. Traditional economics,
however, still couldn't reconcile the weak and failed growth patterns. What was required to explain poor
growth were macro and institutional factors beyond micro concepts of the firm, individual preferences, and
endowments? Institutional analysis has been able to explain the poor growth patterns much better than
the market failure theories did. However, there is no generally accepted institutional theory of economic
development that a large share of development economists agree upon. There is not even agreement on
how important institutional factors are.