Q1:L5 - The Role of Business in Relation to the Economy

What is Economic Development

• Economic development refers to the sustained, concerted actions of communities and policymakers that improves the standard of living and economic health of a specific locality.

• Michael Todaro define economic development as an increase in living conditions, improvement of the citizens’ self-esteem needs and presence of a free and just society.

• Todaro suggested that the most accurate method of measuring economic development is Human Development Index which includes literacy rates and life expectancy which in turn has impact on productivity and economic development growth.

Economic Development VS Economic Growth

• Economic growth is the general increase in the country’s products and services output while economic development is a government policy to increase the economy, social welfare and stability of political environment

Stages of Economic Development

1. The Structural Transformation refers to a change in the composition of GDP. Initially, economic activities and jobs are based in the agricultural sector. With development, the share of agriculture in GDP decreases due to the increase and growth of the service sector which slowly overtake the share of industry, while the share of agriculture continues to decrease. In other words, at the final stage of development, we typically have an economy in which people earn their livelihood predominantly from the service sector and still important but diminished industry sector.

2. The Demographic Transition: This is a model that describes the transition from high birth and death rates to lower birth and death rates as a country develops. It typically involves four stages:

   • Stage 1: High birth and death rates, resulting in a stable population.

   • Stage 2: Death rates begin to decline due to improvements in healthcare, sanitation, and food supply, leading to population growth.

   • Stage 3: Birth rates start to decline as urbanization increases, education improves, and access to contraception becomes more widespread.

   • Stage 4: Both birth and death rates are low, stabilizing the population. Some models include a fifth stage, where birth rates fall below replacement levels, leading to an aging population.

3. Urbanization and Migration: Urbanization is closely linked to economic development and is often driven by migration. People migrate from rural areas to urban centers in search of better employment opportunities, education, healthcare, and overall improved living conditions. This migration leads to the growth of cities and the transformation of societal structures, including the expansion of infrastructure, changes in housing, and shifts in cultural and social norms.