We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What Are the Different Theories of Economic Development?

By Alex Newth
Updated May 16, 2024
Our promise to you
SmartCapitalMind is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At SmartCapitalMind, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Theories of economic development are made in an attempt to explain how a country’s or region’s economy forms and thrives, and these theories are often used to make laws and policies. Social theories of economic development focus on social issues to improve the economic status of an area. Neoclassical economic development theories usually focus on a free market with fewer government controls and restrictions to help businesses grow at a quicker rate. Technology often plays a role in economic development, and exogenous growth theories center on this facet. With the Harris-Todaro (HT) view of economics, adding urban jobs may end up decreasing overall jobs, especially in developing areas.

Education, poverty and health are some of the social issues that often affect economics and, in social theories of economic development, these are the key issues. For example, these theories say that someone who gets an education and has a family that does not experience poverty will best be able to boost the economy. By using these theories, the government may create laws or acts that improve these social issues in an effort to increase the economy. These theories tend to work best in areas that are already developed, and they are usually supplementary in developing areas.

In neoclassical theories, governmental controls and restrictions only serve to keep the economy from properly developing. For example, if a business is able to grow at a natural rate and not a rate prescribed by the government, it will best help the economy. If the government agrees with these theories, it will usually place light restrictions on businesses.

Exogenous growth theories of economic development center on technological advancements to boost the economy. These technological advancements may be as complex as a cutting-edge computer system or simple as a loom. Making better technology, and making new technology more accessible to businesses, improves the economy within the realm of these theories.

When the government helps make new jobs, the jobs generally are made in the urban sector. While this may seem sensible, the HT view on economics says that adding jobs in rural areas usually is better. This is commonly true for developing countries and regions that need strong rural positions. When urban jobs are made, people in the rural area will move to the urban area, which leads to less farming and food productions, which tends to weaken the area and the economy.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Discussion Comments
By Markerrag — On Nov 24, 2014

@Logicfest -- You make a very good point, but keep in mind that the government is called on all the time to get involved in the economy. When a government -- any government -- engages in a policy of stimulus spending, it is getting involved in the economy.

And there's nothing wrong with that so long as more jobs are created and enough additional payroll taxes are collected to pay for the stimulus spending. If enough taxes are not generated to pay off the stimulus spending, then the stimulus package was a waste of money.

By Logicfest — On Nov 23, 2014

Haven't those neoclassical views of economic development been proven time and time again? When the government gets involved in the economy, it never grows or contracts naturally and chaos results.

Have a look at the United States, for example. Let's say the government is worried about slow housing markets, so it starts paying people to purchase homes (that actually happened). What does that policy do? It simply delays the inevitable. People will buy a bunch of homes in the short term, but markets will slump again down the road. That is because the government has stimulated immediate buying, thus shifting the demand from in the future to the present.

There will still be a housing slump in that scenario. It will come later rather than sooner, however. That is not a good thing.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.