Economic development in a community can take many forms. However, before we can discuss the process of economic development, we must first understand how economic development has been measured, particularly at the national level. It is within this framework that communities have pursued their goal of improving the local economic environment. In fact, standardized measures of economic development are being used throughout the world, not just in the United States.Standardized measures of economic development are used to identify the status of one's country, state, or local community. We use these measures for a number of different purposes, including identifying trends and understanding patterns of economic development in communities that face different resource opportunities and constraints.
One of the most common methods of measuring economic growth is by calculating the gross national product of a country. Gross national product (GNP) is the value of goods and services produced by an economy's factors in a given period of time (e.g., the value of all goods and services produced by U.S. operations throughout the world in a given year). Gross domestic product (GDP), on the other hand, is the value of goods and services produced in an economy in a given period of time (e.g., the value of goods and services produced in the United States in a given year). When these measures are adjusted for inflation, we correct for any changes in the GNP or GDP that are due simply to increases in the price level in the economy. Real GDP, for example, is the value of goods and services produced in an economy adjusted for changes in the price level. This is particularly important when comparing across different economies because changes in price levels will not necessarily be uniform from one country to the next.
The general purpose of using measures such as real GNP or real GDP is to collect and analyze information related to a country's economic transactions. Real GNP or real GDP provides analysts with an indication of how quickly the business sector of the economy is growing in a country. It also serves as a guidepost for local communities as they address economic development issues at a local level.
Trends in national economic development reflect changes occurring at the state and local levels and can impact local economic development planning. For instance, if the real GD of a country has increased, then we conclude that the country has experienced economic growth and the economy has improved. This information sends a signal to local economies suggesting that the national economy is in the growth phase of the business cycle. Communities can use this information to identify their position relative to the current trend and to plan future economic development. If, however, real GNP has declined, then the economy is thought to have experienced an economic downturn and a community can use this information to anticipate the impact of future economic downturns.
