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Economic Development


Economic development, generally speaking, is a process of change that is focused on the betterment of the community, state, and/or nation. Defining economic development can be difficult. The first term in this phraseeconomicrefers to an accepted paradigm for organizing the business and financial and even to some extent the governmental sectors of a nation. Economics is viewed as the foundation for building a prosperous society. However, it is the second termdevelopmentover which there is considerable debate. People's perceptions of development vary. For some, development has the appearance of successful commercial enterprise; for others, the face of development is one of economic equality. Nevertheless, the concept of economic development has the attention of government, the business sector, and the citizenry. Economic development is pursued as one of the goals of a successful country, state, or city. It captures the attention of the news media and impacts, as well as is impacted by, political objectives.


Economic development in a community can take many forms. However, before discussing the process of economic development, we must first understand how economic development has been measured, particularly at the national level. It is within this framework that communities have pursued their goal of improving the local economic environment. In fact, standardized measures of economic development are being used throughout the world, not just in the United States.

Standardized measures of economic development are used to identify the status of one's country, state, or local community. We use these measures for a number of different purposes, including identifying trends and understanding patterns of economic development in communities that face different resource opportunities and constraints.

One of the most common methods of measuring economic growth is by calculating the gross national product of a country. Gross national product (GNP) is the value of goods and services produced by an economy's factors in a given period of time (e.g., the value of all goods and services produced by U.S. operations throughout the world in a given year). Gross domestic product (GDP), on the other hand, is the value of goods and services produced in an economy in a given period of time (e.g., the value of goods and services produced in the United States in a given year). When these measures are adjusted for inflation, we correct for any changes in the GNP or GDP that are due simply to increases in the price level in the economy. Real GDP, for example, is the value of goods and services produced in an economy adjusted for changes in the price level. This is particularly important when comparing across different economies because changes in price levels will not necessarily be uniform from one country to the next.

The general purpose of using measures such as real GNP or real GDP is to collect and analyze information related to a country's economic transactions. Real GNP or real GDP provides analysts with an indication of how quickly the business sector of the economy is growing in a country. It also serves as a guidepost for local communities as they address economic development issues at a local level.

Trends in national economic development reflect changes occurring at the state and local levels and can

impact local economic development planning. For instance, if the real GDP of a country has increased, then we conclude that the country has experienced economic growth and the economy has improved. This information sends a signal to local economies suggesting that the national economy is in the growth phase of the business cycle. Communities can use this information to identify their position relative to the current trend and to plan future economic development. If, however, real GNP has declined, then the economy is thought to have experienced an economic downturn and a community can use this information to anticipate the impact of future economic downturns.


Positive trends in growth at the national level do not guarantee that individual communities are or will be successful in developing their local economies. The needs of local communities have changed as the patterns of growth at the local level have changed. Thus the rules of local economic development as they relate to attracting new business in order to promote economic growth also have changed. As communities compete with each other to attract new businesses and hence jobs to the local environment, they are discovering that the traditional methods of tax abatement and low-interest loans, coupled with job training, are not sufficient to guarantee a level of development that improves the economic base of the community. In fact, communities are looking for ways to ensure that they will get more from the investment than it will cost them in terms of tax abatements and infrastructure costs.

As firms increasingly engage in multilocation operations, communities are finding that, in addition to attracting new businesses, encouraging local firms to develop is a valuable economic development tool. The community's view of its resources has expanded beyond providing the traditional tax incentives to expand a community's economic resources to include factors such as a well-educated work force and adequate public services. Communities are more likely to target the type of firm that is right for the community. The emphasis on locating manufacturing enterprises has diminished as communities look to healthy businesses that fit the changing needs of the work force and infrastructure. Explicit consideration of the impact of the new business on economic equity in the community is also becoming more important, and growth and equity are increasingly recognized as complementary rather than opposing goals.

Many of these changes can be summarized in the phrase "sustainable development." The case of sustainable development is appearing more and more frequently in discussions of community economic development. Sustainable development is a process of development that "ensures the needs of the present are met, without compromising the ability of future generations to meet their own needs" (World Commission on Environment and Development, 1987, p. 9). The vision of sustainable development is one of developing within the capacity of our resources an ability to replenish themselves; by analogy to the financial sector, it means living off of the interest as opposed to the capital of our investment.

In the context of sustainable development, economic development is managed and controlled in a way that recognizes the dynamic nature of social, political, technological, and economic factors in a local community. Ultimately, the process of economic development is changed from one of identifying incentives for business growth to one of comprehensive planning to address social, economic, and environmental concerns. The themes of economic development also change. Traditional local economic development policies pursue increases in economic activity and thus in the income levels of local residents. A larger tax base and lower levels of unemployment are equated with business expansion. Sustainable development means that growth occurs alongside community goals of increased self-sufficiency and improved environmental quality. In fact, different forms of growth are encouraged. The sustainable development initiative is not opposed to growth but rather focuses its efforts on answering the question, "How do we grow?"

Successful economic development has been achieved in many communities pursing a sustainable development approach. Among the success stories is Kansas City, Missouri, which faced one of the most urgent economic development problems of urban areasurban sprawl. From 1960 to 1990, the population in the metropolitan area grew by less than one-third while the land area developed more than doubled. The city's population was moving to the suburbs while the inner city was slowly being abandoned. As a result, the jobs moved with the population, and the communities in the outer ring of the city used traditional economic development tools, such as tax incentives, to attract new business. The central city attempted to compete by providing additional incentives. The burden, however, was clearly felt by taxpayers, as this increased over this period.

A Metropolitan Development Forum was formed to address the community development issues associated with urban sprawl. The forum has been successful in many areas: they have identified regional transportation needs, achieved agreement on the role of tax incentives in the region as a whole, created a metropolitan greenway, and created local initiatives for economic development planning.

One community that has achieved long-term success is Portland, Oregon. Portland has channeled the economic growth in the city such that employment in the formerly dying downtown area grew from 50,000 jobs in 1975 to 105,000 jobs in 1998. This strategy has been successful because they focused the development of business in areas that are close to developed transit systems, limited commuter parking, and controlled the expansion of growth into the rural areas.

Kansas City and Portland are only two of many examples of successful sustainable development initiatives across the country. As a community's needs change and as development is more broadly defined to include social as well as economic indicators of progress, sustainable development and planned growth initiatives will continue to take hold. There are many opportunities ahead for local economies to grow and prosper in ways that recognize the importance of improving the quality of life as well as the economy's overall productivity and income levels.

see also Economics


Parkin, Michael (2005). Macroeconomics (7th ed.). Boston: Addison-Wesley.

Shaffer, Ron (1998). "Playing by New Rules in Local Economic Development." Community Economics Newsletter, No. 263. Center for Community Economic Development, University of Wisconsin-Madison.

Shaffer, Ron (1995). "Sustainable Community Economic Development." Community Economics Newsletter, No. 224. Center for Community Economic Development, University of Wisconsin-Madison.

Thomas, Margaret G. (1999). "Strategies for Sustainable Economic Development." Community Economics Newsletter, No. 267. Center for Community Economic Development, University of Wisconsin-Madison.

World Commission on Environment and Development (1987). Our Common Future. Oxford: Oxford University Press.

Ellen Jean Szarleta

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Economic Development

Economic Development

Economic development occurs with the expansion of the economic base of a community, region, state, or nation through the efficient allocation and use of available resources. In general, economic development is any activity that results in additional jobs and income. Economic development suggests an improvement in the quality of life for a community.

Water is the basis for much economic development and industry, transportation, and energy production. It is also fundamental to agriculture, forestry, recreation, and the environment . Water has influenced where people live, as is evident by the location of many major cities and towns along or near sources of water.

National Development

Water resources are a vital and underlying component of economic development efforts. As established under the Water Resources Planning Act of 1965, the "Principles and Standards for Planning Water and Related Land Resources" was published in 1973. Although repealed in 1982, the principles remain an important part of water resource planning. Of the two main objectives of the "Principles and Standards," one was "to enhance national economic development by increasing the value of the nation's output of goods and services and improving economic efficiency."

From the founding of the United States, water resources have affected economic development. From 1776 to 1875, water policy focused on improvements to navigation on the nation's rivers, including shoals and dredging, building canals such as the St. Lawrence and Erie, and opening the western United States to development.

The next 25 years saw projects on flood control and irrigation spring up throughout the country to aid in the development of the nation's growing economy. Numerous federal agencies, such as the U.S. Army Corps of Engineers and the Bureau of Reclamation, were established in the early 1900s to make water resources available for development purposes. Large water projects, such as Hoover Dam (1936), not only contributed to the economic resources of a region but also provided much-needed public works employment during times of economic downturn.

Community Development

Beyond the important role that large water projects have played in the nation's economic development, water is important at the community level. At any level, there are five options for economic development:

  • Improving the ability to capture existing income;
  • Improving the efficiency of existing firms;
  • Encouraging new business;
  • Attracting new industry or businesses; and
  • Increasing financial aid received from other government levels.

Communities seek to keep money spent on goods and services within the community and prevent "leakage" of income. Water resources, especially recreational ones, can keep income in a community and attract spending from those outside the area. Existing firms seeking to expand the creation of new jobs and additional income often rely on the availability and high quality of water resources in their production process. New businesses need support in terms of water resources to help the formation of local opportunities. New businesses and industry often are attracted to a community when water supply and quality are high. Finally, state and federal spending on water projects can provide employment and income opportunities for local areas.

see also Army Corps of Engineers, U.S.; Bureau of Reclamation, U.S.; Canals; Cost-Benefit Analysis; Dams; Hydroelectric Power; Irrigation Management; Land-Use Planning; Planning and Management, History of Water Resources; Supply Development; Sustainable Development; Tennessee Valley Authority; Transportation; Uses of Water.

Jeffrey L. Jordan


Pulver, Glen C. "Economic Growth in Rural America." In New Dimensions in Rural Policy: Building upon Our Heritage. Studies prepared for the use of the Subcommittee on Agriculture and Transportation of the Joint Economic Committee Congress of the United States, 99th Congress, 2nd session, June 5, 1986.

Woods, Mike D., V. Jack Frye, and Stanley R. Ralstin. "Blueprints for Your Community's Future: Creating a Strategic Plan for Local Community Development." Oklahoma State University Extension Facts, WF-916, 1996.

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economic development

economic development See ECONOMIC GROWTH.

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