The Traditional and Modern Concept of Economic Development

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It is difficult to define the term economic development because the meaning of economic development has been changing with the passes of time and different criteria have been used to define it. So, we can see it as the traditional and modern concept of economic development.

In general, economic development means the economic well-being of the people of the society and nation. It is a process of changing poor people and nations to an advanced stage of economic well-being.   

Economic development has been a concern of economists right from Adam Smith and it received greater attention after the Second world war. After this many poor countries of the world aimed to promote economic development.

During the 1950s and 1960s, economic development was defined as the increase in per capita income over a long time. So economic development was also defined as the increase in real GDP over a long time.

During that time economic development was defined in terms of monetary variables. It includes only the increase in NI and structural transformation or the economy.

During the late 1960s, many developing countries achieved high economic growth rates, high per capita income (PCI). But the living standard of many people was unchanged.

So, economists tried to redefine economic development including more human aspects over the monetary aspects.

Thus, after that time the meaning of economic development involves not only the reduction in poverty, unemployment, and inequality but also requires improvement in the quality of life.

For example, a clean and peaceful environment, better education, good health and nutrition, a clean drinking water facility, more freedom in society, and so on.

Therefore, economic development is a process of changing poor people and nations to an advanced stage of economic wellbeing.

According to M.P. Todaro, “Economic development is the multidimensional process involving major changes in social structures, popular attitudes, and national institutions as well as the acceleration of economic growth, the reduction of inequalities and absolute poverty.”

According to Prof. Dudley Seers, “Economic development is the reduction in unemployment, poverty and income inequality.”

So the concept of economic development can be defined in two different views as the traditional and modern concept of economic development.

Traditional Approach

The traditional view has defined economic development as planned changes in the structure of the national product, change in the occupational pattern of labor force institutions, and technological adaptation to achieve predetermined or forecasted growth in the output of the nation.

It means, under the traditional concept of economic development it implies growth driven by a planned structural change of socio-economic aspects of the nation. Structural change refers to changes in technological and institutional factors which cause a shift of labor from agriculture to modern manufacturing and service sectors and also generate self-sustaining growth of output.

The structural change is noticed or occurred when there is a shift of the working population from low productivity employment in agriculture to the modern industrial and services sectors having higher productivity of laborers.

During the process of economic development under the traditional view, the portion of the population engaged in the agricultural sector sharply falls and as a result the share of the working population employed in modern industries and services sectors increases.

Along with this structural change, there occurs a change in the sectoral composition of national income in which percentage contribution of agriculture to GDP or national income declines and percentage contribution of industrial sectors and service sectors increase.

This basically occurs due to a change in the consumption pattern of people as the economy grows people’s income also increases with the change in the level of productivity in the different sectors of the economy.  

Modern Approach

The traditional view saw economic development in terms of a sustainable increase in gross national product (GNP) per capita income in a continuous and sustainable manner. This view took place until the decade of 1950s.

During the decade of 1950s and 1960s, a new view took place on economic development. In this period, many countries were experiencing their growth goals, but the living standards of masses of people were quite unchanged.

So, a kind of debate took place among the policymakers of the universe. Finally, most of the policymakers came to the understanding that economic growth only in terms of increased per capita GNI could not ensure the rise of the living standard of people.

Within the decade of the 1960s and 1970s, many developing countries achieved remarkable growth. But, the bottom 40 percent of their population could not experience the change i.e. they could not get any fruit of development. Rather unemployment and inequality were increased during this period.

The achievement of the target of economic growth was not able to operate its trickle-down effect in the form of the creation of more employment opportunities, a rise in wages and improvement in income distribution, etc. in the 1960s and 70s.

Thus, the concept of economic development changed after the decade of 1970 as the traditional strategies of development were failed in solving the problems of poverty, unemployment, and equality.

The concept of economic development was redefined after the 1970s in terms of reduction or elimination of poverty, inequality, increase in employment opportunities along with growing real national income, and peoples living standards and overall well-being was kept in the center.

So, when we regard the well-being of the people as the ultimate objective of development, we have to see whether poverty and unemployment are decreasing and how the increased national income or GDP are being distributed among the population.

Economic development will take place in true terms only if the poor people are raised above the poverty line and increased their way of living. The rate of growth itself is not an adequate device to deal with the issues of unemployment, poverty, and inequality.

The reduction of poverty, inequality, and unemployment much more depending on the composition of the growth process and how growth is financed, and how benefits from growth are distributed.    

There is no guarantee that when there is an increase in GNI per capita, employment will also increase. It can happen that with the use of more capital-intensive techniques while production may be increasing at a rapid rate, employment may be falling instead of rising.

According to the modern perception of economic development, the rapid increase in GNP secured through displacing laborers by machines and thus causing a rise in unemployment and underemployment cannot be called true economic development.

Thus, whenever we talk about the development of any country then we have to look at issues like what has been happening to poverty, unemployment, and inequality. If all these three socio-economic problems have declined from a high level then this has been a period of economic development for the related country.

The concept of economic development in recent time has been further extended and it now comprises not only a drop in poverty, inequality, and unemployment but also needs improvement in the class of life or living standards measured in terms of degree or situation of the environment, opportunities and options for education, access to better health care facilities, and nourishment. 

The World Development Report 1991, published by the World Bank, asserts, “The challenge of development is to improve the quality of life, especially in the world’s poor countries, a better quality of life generally calls for higher incomes but it involves much more. It encompasses as ends in themselves better education, a higher standard of health and nutrition, less poverty, a cleaner environment, more equality of opportunity.”

Thus, the concept and content of economic development have extended greatly as compared to traditional views.

In modern times economic development is understood not only in additional growth in GDP but also in rapports of the decent value of life, liberty, and freedom. Economists like Amartya Sen introduced new concepts of economic development like enlargement of opportunities for people, freedom, and human choice.

These concepts of economic development required expansion of individuals’ choices and freedoms and for such people’s literacy, education, knowledge, health, and wealth, etc. are considered among issues of economic development.

United Nations ‘Human Development Report’ of 1994 wrote, “human beings are born with certain potential capabilities. The purpose of development is to create an environment in which all people can expand their capabilities, and opportunities can be enlarged for both present and future generations. Wealth is important for human life, but to concentrate on it exclusively is wrong for two reasons. First, accumulating wealth is not necessary for the fulfillment of some important human choice and second, human choices extend far beyond economic well-being.”

From the above discussion, it is clear that economic development is a multidimensional, continuous, and dynamic process involving major changes in structures, national institutions, and living standards of the people and thereby accelerating economic growth, the reduction of income inequality, and poverty.

It encompasses the reduction in poverty, inequality, and unemployment and aspect of quality of life like better education, health facilities, nutritious food, clean environment, pure drinking water, equal opportunities to all, or inclusion of people of the different community in each stream of the social-political arena.

Therefore, the concept of economic development is seen as the traditional and modern concept of economic development and thus the term economic development has covered different aspects of human lives and we can see different components or elements of economic development covering from the traditional or classical time to modern time and the content of economic development is not remain constant or it is a dynamic one.


Ahuja, H.L.(2015). Economic Development. New Delhi: S. Chand & Company Pvt. Ltd.  

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