What Are the Different Methods of Promoting Economic Development?

Economic development, which encourages a better standard of living through economic growth, can be promoted in many ways and on many fronts, starting with the introduction and support of a modern political, legal and financial system that ensures ownership of property is recognized. Improvement of a country's physical infrastructure also can help, as can encouraging foreign investment. A system of taxation that provides steady income for government without draining the pockets of the public can help, as can treaties between nations that offer stability to international business efforts.

The introduction of a modern political, legal and financial system is one way of promoting economic development, because it ensures that ownership of property — including intellectual property — is recognized. The system should allow enterprises to demonstrate their ownership of assets and defend that ownership against challenges in courts of law. The legal system should provide a stable business environment by providing for company law, business regulations and reliable tax and customs laws. The banking system should be well regulated to ensure that businesses are able to obtain loans for new projects or acquisitions. This should all be supported by a stable political system that ensures businesses may operate without undue government interference and with the certainty that the legal structure will not be overturned.

Another way of promoting economic development is through improvement of the physical infrastructure within a country. This includes the roads, railway system, waterways, seaports and airports. A reliable infrastructure allows businesses to reduce their costs by transporting goods efficiently and quickly. The improved infrastructure also may permit enterprises in the country to reduce their costs of transportation and become more competitive in the international market, exporting goods through seaports and airports. Other institutions, such as schools and hospitals, could be expanded and the education and health of the population could, therefore, be improved.

A country also may create a favorable environment for foreign investment, perhaps by encouraging joint ventures between foreign enterprises and its own businesses. These may provide opportunities for promoting economic development through technology transfer or via joint research and development. The country may create special economic zones or free zones that offer good infrastructure and tax advantages to enterprises settling in the zones. These incentives could encourage certain types of activity, such as manufacturing for export or high-technology enterprises, thereby promoting economic development.

A modern taxation system is generally considered essential for promoting economic development. The government needs a steady source of income to use in financing the development of the physical and institutional infrastructure of the country. Taxes must be related to income and consumption patterns of the population to ensure that government income can grow in line with the growth in output within the economy. Trained tax inspectors must be equipped to enforce tax laws and combat tax evasion by people and businesses, including foreign investors.

A modern network of treaties and agreements also may contribute to promoting economic development. Investment protection and promotion agreements may allow foreign companies to trade with more confidence in a country by providing guarantees against expropriation or nationalization of property. Double taxation treaties may protect foreign companies against paying tax in more than one country, by allocating taxing rights between the countries and providing a dispute-resolution mechanism. On a wider scale, a country may promote its own economic development by joining customs unions or signing free trade agreements with neighboring countries and other trading partners.