Economic development is the development of economic wealth of countries or regions for the well-being of their inhabitants. It is the process by which a nation improves the economic, political, and social well being of its people. From a policy perspective, economic development can be defined as efforts that seek to improve the economic well-being and quality of life for a community by creating and/or retaining jobs and supporting or growing incomes and the tax base.

Overview

The University of Iowa's Center for International Finance and Development states that:

"'Economic development' or 'development' is a term that economists, politicians, and others have used frequently in the 20th century. The concept, however, has been in existence in the West for centuries. Modernization, Westernization, and especially Industrialization are other terms people have used when discussing economic development. Although no one is sure when the concept originated, most people agree that development is closely bound up with the evolution of capitalism and the demise of feudalism."

Among other things, the contemporary social scientific study of economic development encompasses broad theories of the causes of industrial-economic modernization plus organizational and related aspects of enterprise development in modern societies. It embraces sociological-type research relating to business organization and enterprise development from a historical and comparative perspective; specific processes of the evolution (growth, modernization) of markets and management-employee relations; and culturally related cross-national similarities and differences in patterns of industrial organization in contemporary Western societies. On the subject of the nature and causes of the considerable variations that exist in levels of industrial-economic growth and performance internationally, it seeks answers to such questions as: "Why are levels of direct foreign investment and labour productivity significantly higher in some countries than in others?"

Economic Growth vs Economic Development

Economic development refers to social and technological progress. Economic growth is often assumed to indicate the level of economic development. The term "economic growth" refers to the increase (or growth) of a specific measure such as real national income, gross domestic product, or per capita income. National income or product is commonly expressed in terms of a measure of the aggregate value-added output of the domestic economy called gross domestic product (GDP). When the GDP of a nation rises economists refer to it as economic growth.

The term economic development on the other hand, implies much more. It typically refers to improvements in a variety of indicators such as literacy rates, life expectancy, and poverty rates. GDP is a specific measure of economic welfare that does not take into account important aspects such as leisure time, environmental quality, freedom, or social justice. Economic growth of any specific measure is not a sufficient definition of economic development.