Development and Growth in the Field of CED

Development and Growth in the Field of CED

Development and growth are some of the most commonly used terms in the field of community economic development. The field of community economic development (CED) focuses on promoting the involvement of a community when working with public and private sectors towards the creation of strong markets, industries, and communities. This field also focuses on encouraging the use of local resources in a manner that enhances economic opportunities while enhancing social conditions in a sustainable manner. Some of the most common examples of initiatives in this field include enhancing opportunities for disadvantaged members of the community and undertaking measures to overcome challenges.
Given the focus of community economic development, growth and development are two common terms in this field. These terms are sometimes used interchangeably in this field because they share some similarities. The use of these two terms interchangeably is also fueled by the fact that economic development is regarded as a crucial aspect for economic growth. Despite the increased use of these terms interchangeably, there are two different concepts in the field of community economic development. In this regard, growth is a concept that refers to the increase in the amount of products and services generated within a specific period of time. CED initiatives focus on promoting through identifying economic, social, and environmental challenges that hinder the generation of desired amounts of products and services in an optimal way. Therefore, growth in the field of community economic development is measured in terms of the amount of products and services generated with a certain period of time. For growth to be achieved, the community must invent, invest, and reorganize its activities through improved collaborations with the public and private sector (Committee for Economic Development, 2003).
On the contrary, development refers to actions undertaken by policymakers to address the economic, social, and environmental challenges in a community. These actions are usually geared towards promoting the community’s political, health, and social well-being. In essence, policymakers create suitable frameworks for development through engaging in initiatives and actions that are centered on improving the standards of living and economic well-being of the community. As a result, growth is part of development since the latter is a wider concept that focuses on promoting the overall well-being of the community in different areas such as political, health, social, environment, and economic. According to the Committee for Economic Development (2003), development refers to public policies that affect the process of growth. This essentially means that growth cannot place without development because the latter is the framework with which a suitable environment for promoting growth is established.
There is a suggestion by some people that community economic development is simply about jobs and income. While this is true to some extent, it is not sufficient to describe the focus on the entire field of community economic development. As previously mentioned, CED is a wider field that focuses on promoting the community’s involvement when working with public and private sectors. One of the important aspects of this field is promoting jobs and income through the creation of strong markets and industries. However, this field incorporates other dimensions such as the development of appropriate policies and initiatives that address some of the challenges facing a community such as economic challenges. Community economic development is also geared towards localizing communities in order to promote and strengthen their social and economic development. Therefore, the suggestion that community economic development is simply about jobs and income is insufficient since it only covers one aspect and fails to consider the other important ones. The core of community economic development is promoting the social, economic, ecological, and environmental well-being of a community.
Economic Growth and Income Convergence or Divergence
Economic growth is a concept that refers to the increase in the amount of products and services generated over a certain period of time. In most cases, economic growth is measured in terms of an increase in the gross domestic product of a country. This increase in GDP represents the actual level of national output based on an increase in resources and technological improvements. Economic activities that are carried out within a specific area are usually geared towards enhancing economic growth, which is a crucial component in improving the standards of living. As a result, economic growth has significant impacts on the standards of living of people in a particular area.
One of the ways with which economic growth affects the standards of living in a particular area is through affecting income. As an economy grows, it has significant impacts on people’s income, which in turn influences standards of living. An important aspect to determine the impact of economic growth on standards of living is to determine whether it contributes to income convergence or divergence. In this case, convergence refers to growing together whereas divergence refers to moving apart as a result of growth in the economy. While an increase in incomes does not necessarily translate to better living standards, economic growth has significant impact on the levels of income in a particular area.
According to Global Economy Guide (2017), incomes tend to converge (grow together) as an economy grows, but only in developed/rich countries. European countries and other developed countries experience income convergence following economic growth as compared to developing/third-world countries. This is primarily because of the income inequality across the globe between developed and developing countries. Income convergence occurs in developed countries because economic growth in these nations generate suitable environment for the financial development of all citizens. These countries have established suitable economic infrastructures and conditions that make it easy for incomes to grow together as a result of economic growth.
On the contrary, income convergence due to economic growth is not evident in developing or third-world countries for a variety of reasons. First, the rate of economic growth in these countries is relatively small as compared to the rate of economic growth in developed countries. Secondly, these countries are yet to fully establish suitable economic infrastructure and conditions that would contribute to increased income levels of all citizens as a result of economic growth. Poor/developing countries in Latin America, Africa, and other regions have experienced income divergence as their economy grows (Global Economy Guide, 2017). In these cases, economic growth has contributes to income divergence through expanding the gap between the rich and the poor. Therefore, it is projected that poor countries will experience income convergence when their economies grow faster than those of rich/developed countries. It is also projected that these countries will experience income convergence over time due to technology spillover and diminishing returns from investments in rich countries in comparison to poor countries.
Despite the difference between developed and developing countries, it is quite evident that incomes tend to converge rather than diverge as an economy grows. However, the convergence is dependent on the economic conditions in the particular area/nation. Economic conditions play a critical role in determining whether incomes converge or diverge as an economy grows. For poor countries, the occurrence of income divergence in some cases is attributable to poor economic conditions rather than economic growth factors. Therefore, as an economy grows, incomes tend to converge rather than diverge.
Agglomeration Economies and their Impact
Agglomeration economy is a concept that refers to companies being located close to each other. This phenomenon is based on the belief that businesses and resources can capitalize on numerous efficiencies through being close to one another. Agglomeration economies have existed for centuries i.e. since 1890 when the phenomenon was introduced by Marshall who specified external advantages that companies have when they are located close to each other (Villamil, 2009). In this regard, agglomeration economies are considered to be beyond the control of an individual company since it emerges from the existence interactions between companies that are located near each other.
There are two major types of agglomeration economies i.e. urbanization economies and localization economies. Urbanization economies is a term that refers to advantages or benefits that companies operating in different industries obtain from infrastructure and population clusters. Such economies are dependent on the existence or size of companies of other business sectors as well as the size of the city and diversity of the population. These factors are critical in urbanization economies since they enable them to share specialized inputs and public utilities like infrastructure and transportation services. On the other hand, localization economies are economies in which companies from the same industry or business sector obtain benefits from being located near each other. Some of these benefits include cost savings through greater collaboration in research, consumption of unique inputs and services, and lower costs of transportation services.
Agglomeration economies affect growth through generating or influencing the kinds of benefits or resources that companies obtain from each other when operating in a certain area. As these companies obtain significant advantages or benefits from one another, their productivity is enhanced, which in turn contributes to economic growth. Existing studies have demonstrated that there is a positive link between agglomeration economies and economic growth since companies operate in cities with huge market potential and enhance their productivity (Villamil, 2009). These economies also affect growth through impacting capital accumulation, which is defined as the process of creating wealth or enhancing production. In this regards, the economies increase the production of goods and services in a city i.e. economic growth. Additionally, these economies influence growth through promoting urban growth by increase the production of real estate because of the increase in urban populations. Through increased productivity, agglomeration economies promote urban growth (Villamil, 2009).
As part of its impact on economic growth, agglomeration economies affect the location of economic activity on an economic plane. Through agglomeration economies, companies choose markets with huge potential, which become the center of economic activities. The identified markets become the location of economic activity since companies are established in such markets and close to each other. In essence, the location of economic activity through agglomeration economies is determined based on the cluster of populations and companies in a particular region.
Given its effect on location of economic activity on an economic plane, agglomeration economies are strongly linked to economic clustering. Companies and populations become clustered in one area with huge potential through agglomeration economies. The economic clustering through locating businesses in the same area is considered to have positive impacts on economic growth through increased productivity and urban growth. However, the subsequent economic clustering from agglomeration economies has some negative impacts including pollution, congestion, increased land value, crime, and increased competition between firms.
References
Committee for Economic Development. (2003, May). How Economies Grow: The CED Perspective on Raising the Long-term Standard of Living. Retrieved September 27, 2017, from https://www.ced.org/pdf/How-Economies-Grow.pdf
Global Economy Guide. (2017). Economic Growth and Development. Retrieved September 27, 2017, from http://www.theglobaleconomy.com/guide/article/108/
Villamil, J.C. (2009, October). How do Agglomeration Economies Affect the Development of Cities? Retrieved from North University website: http://rcientificas.uninorte.edu.co/index.php/economia/article/view/1926/6111