Modern Economic Development Theory
In the not-too-distant past, most nations economies were largely stagnant, with little or no growth year-to-year. In those days, progress was measured by providing basic necessities like food, shelter, and clothing to the citizens, rather than by increases in wealth, employment, or trade. It is clear that modern economics, which has enabled countries to make dramatic advances in both the quality of life and economic development has greatly changed this way of measuring progress.
At its most basic, economic development is the process of improving a nations economic well-being by increasing productivity, creating jobs and reducing poverty. This is done by creating more efficient markets, more competitive pricing for goods and services and providing the necessary infrastructure for economic growth. More specifically, economic development involves policies that involve both the public and private sectors in creating economic opportunities, promoting economic growth, and supporting local development.
One major theory of economic development is the neoclassical theory. It states that economic development happens when the supply of a particular good or service is able to match the demand of the population, once market forces come into play. This theory suggests that the government should intervene in the market process, both in terms of providing incentives and disincentives, in order to encourage increased production, and thus, potential economic development. The theory of comparative advantage suggests that countries need to specialize and that they should concentrate their resources on those areas of production wherein they possess a greater degree of efficiency or knowledge. This theory is often used to understand the development of complex, technology-driven and dynamic economies.
Another current theory of economic development is the new economic geography theory. The focus of this theory is on the effects of spatial aspects on economic development, including the location and investment of resources and firms. It suggests that the production and consumption of goods and services is asymmetrically distributed, creating regional differences and regional advantages as far as economic development. The theory further posits that global economic and trade shifts are also now increasingly influenced by regional investment and production activities.
A recent theory of economic development is the global value chain theory, which is based on the idea that products, services and investments can be traded on a global scale. This theory suggests that there are numerous trading opportunities available to firms and economies, depending upon their resources and capabilities. It further argues that in order to increase economic growth and development, businesses and economies should look to trade with each other on a global scale, taking into account the competitive advantages and disadvantages of doing so.
Finally, another contemporary economic development theory is the Austrian school of economic thought, which is based partially on the ideas of the 19th-century Austrian economist Carl Menger. This theory suggests that economic decisions are influenced by the subjective political and cultural considerations of the individuals involved. It is therefore seen as the ‘human face’ of economics, with an emphasis on the effects of individual actions on the economy and society at large.
In conclusion, it is clear that the field of economic development has seen considerable advances in modern times, with a wide range of theories being proposed, explored and developed understanding of development. All of these theories provide valuable insights into the complexities of modern economics, and help to make sense of the complexities of the global economy. As technological advances, industrialization, and globalized trade continues to shape the world economy, so too will our understanding of economic development.
