# Development Economics: Key Concepts and Theories Explained

![Development Economics: A branch of economics focused on improving fiscal, economic, and social conditions in developing countries.](https://www.investopedia.com/thmb/JIiZGZL6coMkdKoKy0cBuLj7JbY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/development-economics.asp-final-9a5837e42dfa4054bc69e63eb979ff52.png)

*— Investopedia / Sydney Saporito*

> **Definition**
>
> Development economics is a branch of economics that focuses on improving fiscal, economic, and social conditions in developing countries.

## What Is Development Economics?

Development economics is a branch of [economics](https://www.investopedia.com/terms/e/economics.asp) that focuses on improving fiscal, economic, and social conditions in [developing countries](https://www.investopedia.com/terms/e/emergingmarketeconomy.asp). Development economics considers factors such as health, education, working conditions, domestic and international policies, and market conditions with a focus on improving conditions in the world's poorest countries.

The field studies [macroeconomic and microeconomic](https://www.investopedia.com/ask/answers/difference-between-microeconomics-and-macroeconomics/) factors affecting the structures of developing economies and their [economic growth](https://www.investopedia.com/terms/e/economicgrowth.asp). It's significant in shaping policies to lift poor countries out of poverty. Notable development economists include Jeffrey Sachs and Amartya Sen.

### Key Takeaways

*   Development economics aims to improve fiscal, economic, and social conditions in developing countries.
*   It involves understanding macro and microeconomic factors to lift poor countries out of poverty.
*   The field considers diverse factors like health, education, and labor conditions for economic growth.
*   Key theories include mercantilism, nationalism, linear growth, and structural-change models.
*   Prominent economists like Jeffrey Sachs and Amartya Sen have contributed to this field.  
    

## Exploring Key Principles of Development Economics

Development economics examines how emerging nations become more prosperous. Strategies are often unique due to varying social, political, cultural, and economic backgrounds. These differences include issues like women's rights and child labor laws.

Students of economics, and professional economists, create theories and methods that guide practitioners in determining practices and policies that can be used and implemented at the domestic and international policy level.

Development economics looks at whether rapid population growth helps or hinders development, how economies transform structurally, and the role of education and [healthcare](https://www.investopedia.com/terms/h/health_care_sector.asp). They also include international trade, [globalization](https://www.investopedia.com/terms/g/globalization.asp), sustainable development, the effects of epidemics, such as HIV, and the impact of catastrophes on economic and human development.

Prominent development [economists](https://www.investopedia.com/terms/e/economist.asp) include Jeffrey Sachs, Hernando de Soto Polar, and Nobel Laureates Simon Kuznets, [Amartya Sen](https://www.investopedia.com/terms/a/amartya-sen.asp), and Joseph Stiglitz.

## Different Approaches in Development Economics

### Mercantilism: An Historical Approach to Economic Development

[Mercantilism](https://www.investopedia.com/terms/m/mercantilism.asp) is thought to be one of the earliest forms of development economics that created practices to promote the success of a nation. It was a dominant economic theory practiced in Europe from the 16th to the 18th centuries. The theory promoted augmenting state power by lowering exposure to rival national powers.

Like political absolutism and absolute monarchies, mercantilism promoted government regulation by prohibiting colonies from transacting with other nations.

Mercantilism monopolized markets with staple ports and banned gold and silver exports. It believed the higher the supply of gold and silver, the more wealthy it would be. In general, it sought a [trade surplus](https://www.investopedia.com/terms/t/trade-surplus.asp) (exports greater than imports), did not allow the use of foreign ships for trade, and it optimized the use of domestic resources.

### Understanding Economic Nationalism in Development

Economic nationalism reflects policies that focus on domestic control of [capital formation](https://www.investopedia.com/terms/c/capital-formation.asp), the economy, and labor, using tariffs or other barriers. It restricts the movement of capital, goods, and labor.

Economic nationalists do not generally agree with the benefits of globalization and unlimited [free trade](https://www.investopedia.com/terms/f/free-trade.asp). They focus on a policy that is isolationist so that the industries within a nation are able to grow without the threat of competition from established companies in other countries.

Early U.S. economy exemplified economic nationalism by developing without heavy reliance on outside influences, using measures like high tariffs to protect growing industries. .

### The Linear Stages of Growth Model: Pathways to Economic Growth

The linear stages of growth model was used to revitalize the European economy after World War II.

This model states that economic growth can only stem from [industrialization](https://www.investopedia.com/terms/i/industrialization.asp). The model also agrees that local institutions and social attitudes can restrict growth if these factors influence people's [savings rates](https://www.investopedia.com/terms/s/savings-rate.asp) and investments.

The linear stages of growth model portrays an appropriately designed addition of capital partnered with public intervention. This injection of capital and restrictions from the public sector leads to economic development and industrialization.

### Structural-Change Theory: Transforming Economies

The structural-change theory focuses on changing the overall economic structure of a nation, which aims to shift society from being a primarily agrarian one to a primarily industrial one. For example, Russia before the communist revolution was an agrarian society. When the communists overthrew the royal family and took power, they rapidly industrialized the nation, allowing it to eventually become a superpower.

## What Is Development Economics Used for?

Development economics is the study of how emerging nations become more financially stable. It can be used as a tool for students and economists working to develop policies that can be used in creating domestic and international policy.

## What Is the Goal of Development Economics?

Ultimately, the study of development economics is meant to help better the financial, economic and social circumstances in developing countries through the enactment of certain structures and policies.

## What Are the 4 Main Topics in Development Economics?

The topics, or types of development economics include mercantilism, economic nationalism, linear stages of growth model, and structural-change theory.

## The Bottom Line

The primary focus of development economics is improving the fiscal, economic, and social conditions in developing countries. It features both macroeconomic and microeconomic factors, such as health, education, and trade, in shaping effective policies.

Development economics uses historical and contemporary theories like mercantilism, economic nationalism, the linear stages of growth model, and structural-change theory to guide economic strategies. International trade and globalization play an important role in development economics and can affect economic growth and transformation.

Development strategies must be tailored to the unique social, cultural, and political contexts of each nation. Consider the real-world impact of development economics, such as the transformation of Russia and the early economy of the United States. Ongoing research and developments in the field continue to refine and expand the strategies used to address economic challenges in underdeveloped regions.

> **Article Sources**
>
> 1.  The Nobel Prize. "[All Prizes in Economic Sciences](https://www.nobelprize.org/prizes/lists/all-prizes-in-economic-sciences/)."
>     
> 2.  World Scientific. "[Mercantilism in Perspective: A Historic Review](https://www.worldscientific.com/doi/epdf/10.1142/S2194565921500019)."
>     
> 3.  Pryke, Sam. "Economic Nationalism: Theory, History and Prospects," _Global Policy_, vol. 3, no. 1, 2012, pp. 281-291.
>     
> 4.  U.S. Senate. "[Classic Senate Speeches](https://www.senate.gov/artandhistory/history/common/generic/Speeches_ClayAmericanSystem.htm)."
>     
> 5.  Sean Gallagher. "Banking Performance and Socio Economic Development," Pages 260-261. ED-Tech Press, 2019.
>     
> 6.  Library of Congress. "[Revelations from the Russian Archives](https://www.loc.gov/exhibits/archives/intn.html)."