What Is Federal Economic Development?

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  • Written By: Sandi Johnson
  • Edited By: John Allen
  • Last Modified Date: 02 June 2020
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Federal economic development specifically refers to a government's involvement in promoting and fostering the economic growth of an entire country. Economic growth refers to the activities within both the public and private sectors that increase a country's gross domestic product (GDP.) Policies and regulations created by the federal government can encourage economic growth through tax incentive programs, supplying needed infrastructure, creating educational opportunities, making efforts to attract business, and safe guarding competition. Collectively, such efforts and interventions in the marketplace are known as federal economic development.

Specific examples of federal economic development include tax policies, regulation of the banking industry, and subsidizing industry to maintain price stability, to name a few. In the United States, for example, certain industries or organizations are provided with tax breaks or a reduced taxation rate in exchange for creating more jobs for citizens. Local governments are given matching federal funds to pay for the upkeep of interstate roadways. In underdeveloped nations, where industry and standards of living are below those of industrialized nations, federal economic development takes the form of government funding for job training and government-funding healthcare programs.

It is the responsibility of policymakers, according to some economic theories, to actively work to improve and grow the country's economy for the benefit of citizens. The standard of living for those citizens is affected by factors such as income, access to healthcare, career training, political stability, and the overall cost of living. Through federal economic development initiatives, policymakers have the ability to influence markets, set standards, and regulate socio-economic factors like minimum wages and housing. Power to influence markets in this way, according to economic theories in favor of government intervention, helps those policymakers foster an economy that is beneficial to citizens.

Some economists argue that economic growth drives economic development, as opposed to economic development driving economic growth. Accordingly, many economists argue against federal economic development and advocate limited government intervention in the marketplace. For example, government regulations help limit the goods imported from foreign nations, which in turn encourages spending within the local economy. On the other hand, over-regulation by governments can limit the growth of import and export businesses and damage relations with trading nations that buy the country's exported goods.

Along with such power to influence, therefore, comes great responsibility. While federal economic development plays a critical role in economic growth, too much interference from government can have adverse affects on other components like trade, new business development, and consumer spending. At times, the needs of one group of citizens can be in direct contrast with the needs of another group of citizens. As such, governments must temper efforts to foster economic growth with consideration for the greater good and future generations.

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