According to Marcelo Guiagale (2017), economic development “at its most basic level, is the process through which a community creates material wealth and uses it to improve the well-being of its members” (Economic Development: What Everyone Needs to Know, p. 73). The economic development of a community is closely influenced by a healthy work environment, policy, and social inclusion. Economic development has been described as “the most powerful instrument for reducing poverty and improving quality of life” (OECD). While economic development most notably seeks to address employment and financial stimulation of the economy, it also seeks to improve a variety of areas such as literacy rates, life expectancy, and poverty rates (Pritchett, 2013).
Positive growth can create a cycle of prosperity as employment opportunities and success encourage others to be active in pursuing education and employment, creating future entrepreneurs and potential economic growth (OECD). This success, however, is fully dependent upon the level to which a community, especially those in poverty, participate in the process and have access to the benefits. This has been a shortcoming of many countries and communities.
Global economic development is a complex and growing issue. Governments are prioritizing increased job development and economic growth, however policy is impacted by two pressing realities: first, as interest rates are already significantly low, the usual strategy of lowering credit interest to stimulate the economy is no longer a viable option. Second, economic growth has shifted from capital gain and labor to urban, international, and privatization. These changes have added to the complexity of the global issue, leading many political leaders and economists to call for a structural reform (Giugale, 2017). These structural adjustments would vary depending on the country.
Popular economic development theories include the economic base theory and market failure theory. Economic base theory rests on the premise that “development requires enticing external monies into the local or regional economy”. This includes products being sold to an outside community to bring in external finances. According to the theory, non-export-oriented employers also benefit the community as job creation also stimulates the local economy (Phillips & Besser, 2016). Market failure theory rests on the premise that businesses and services are not always located in communities that will benefit from the goods and job allocation. State and community initiatives to place new employers in a benefiting community could improve the economic development of the community (Phillips & Besser, 2016).
A 2002 study by Adams found that sustained growth “is the single most important way to reduce poverty”, demonstrating that a 10% increase in a country’s average income can decrease the overall poverty rate by up to 30% (Adams, 2002). On a smaller scale, in some settings, even as little as a 1% increase in average income can decline poverty by 4.3%. Care in policy-making must be made, however, as some economic growth can increase the gap in income inequality.