EconDev home

last modified: Saturday, December 17, 2005 3:46 PM

A Primer on Economic Development Planning in Less-Developed Countries

Suzanne Bessette



The issue of economic development in less-developed countries is well covered in policy and economics literature, focusing on the attraction of foreign investment, companies, and international bank monies, and the development of industrial capacity and its effects and problems (e.g., environment, equity, security, etc.). However, this topic is only peripherally covered by planners. The work on city and regional planning in less developed countries focuses instead on the most pressing issues of those countries: housing for the urban poor (including the illegal or “informal” settlement issue) and infrastructure services.[1]  This generalization implies that planning in less developed countries is still considered a matter of infrastructure and spatial organization, to this point neglecting (or not yet reaching or recognizing) economic development as a planning issue. Though one might argue that the basic infrastructure needs of urban dwellers and firms are necessary for economic development, the point remains that the post-industrial version of economic development practiced in the United States and other places is not yet on the planning agenda of less-developed places, though it is a fundamental aspect of their political and social activities.

In this primer on economic development planning in less-developed countries, I hope to shed light on four of the primary issues that might be blocking the incorporation of economic development into the planning sector in less-developed countries. These are the potential negative effects, pitfalls, and hurdles to implementing economic development as planning; in another sense, then, these factors might explain why economic development is not yet on the planning agenda, and why this might be a reasonable and natural thing.

** Note: throughout the following, I will be making general statements about conditions in less developed countries. These are not meant to be read uncritically, but rather it should be inferred that for each general statement not referring to a particular country, there are a wide range of experiences and situations among less-developed countries. Indeed, one of the main difficulties in treating this issue is the very wide range of experiences and situations faced in developing countries. Not all of the four points below will apply in all contexts; rather they are general features that are often, not always, observed in developing and especially post-colonial places. My intent is to draw attention to some common features that occur in less-developed countries as compared to developed countries.

Discussion: Challenges of economic development planning in developing countries

1) Urbanization and Population Growth: Residential and Private Property.

                 The urban population of less-developed countries is growing at a staggering rate. The rate of urbanization is due chiefly to the search for employment, compounded by an overall population explosion and a lack of a robust and enforced formal property regime.[2] However, many less developed nations lack the institutional and economic resources necessary to keep housing supply in line with demand. The result has been extensive slum conditions both within and on the outskirts of cities, and illegal (“informal”) land-holding and squatting.[3] The planning response from local and national governments has often been (and in some places remains) “resettlement” schemes. This relatively benign term describes everything from organized mass movements of people to other parts of the region, to payment schemes to induce people to move back to the rural area from which they came, to razing, burning, and forcible removal.[4]

This issue occupies a great deal of the policy “space” of local and even national planning in less-developed countries. Dealing with slum conditions is a fundamental part of economic development because often the illegal residents are seen as an economic burden and disincentive to investment in and development of the city (instead of, for example, latent labor).[5] On the other hand, in the developed country context, housing is also often a cause for concern but rarely in the same way. Given generally more formalized property rights regimes and protections for property rights, and in many places a trend of de-urbanization (as in the United States), major illegal settlements and forced resettlement are rarely encountered. Instead, property is an economic development issue insofar as the value of property determines property taxes, and property taxes are often a major (if not the primary) source of income for the local government. The methods for dealing with property “problems” in more developed countries often center around formal legal rights and procedures, and economic valuation calculations. It would be perverse to apply these tools regarding property and economic development in less-developed countries without such formal legal structures and without the idea of property as a taxable asset. The idea of property taxes being used to provide services for property owners, a neat cyclical model, might not be perfectly realized in developed countries, but is generally even worse realized in less developed countries. Economic development strategies geared towards increasing property values might therefore make little sense, or cause unexpected outcomes, in less developed places. Instead, to address the problem of urban housing in less-developed countries requires a sensitive understanding of the informal and illegal property systems.

2) Relationship to the global market

In developing countries, the “developers” very often do not come from within the country, but are rather headquartered and incorporated in other countries. Likewise, direct investment often comes from international or extra-national banking institutions rather than intra-national institutions. Foreign firms do not interact with the local economy in less-developed countries in the same way that firms interact with local economies in developed countries. The activities and impacts of foreign firms in less-developed countries are often focused on the use of local labor and the extraction of raw materials, these inputs being generally less expensive and/or more available in less-developed countries than the firm’s country of origin.[6] These firms might also reap the benefits of less-developed legal systems for labor rights, trade practices, environmental effects, etc. Further, investment in less-developed countries does not have the same consumer impact as it does in developed countries, because often the goods and services produced are not meant for consumption in the country but are produced for export only.

This situation has many ramifications for economic development planning. Generally speaking, the models of agglomeration and multiplier effects used in developed countries must be applied with great caution in less-developed countries. While one could say that attracting investment and job-creation are fundamental aspects of economic development in both developed and developing countries, the nature and effects of development will be markedly different.

3) The Priority of Basic Needs: Health, Sanitation, etc.

Though it is fairly obvious that pressing infrastructure needs supercede economic development in local planning, they are also bound up in it. That is, economic development cannot occur without some basic provision of infrastructure, both directly to industries and businesses in the area, and also to support, educate, and protect the labor population. The services most directly linked to human development are education, health, water, sanitation, and electricity.[7] At the same time, economic development is necessary for provision of development-related services and advances. Building that infrastructure requires foreign direct investment.[8]

In post-industrial countries, those basic needs are already (more or less) met, or at least there are systems for their provision and a social expectation that they will be provided. Therefore, while economic development planning (as we know it in the United States) might not manifest in less-developed countries, and their planning be seen as relatively “primitive”, it must be remembered that their infrastructure and economic development planning processes are, in many respects, one and the same thing.

4) The Goals of Economic Development

Local economic development in less-developed countries usually is not focused on intra-national competition; i.e., competition with other cities in the nation for labor, investment, etc. Instead, local economic development is usually integrated in the larger state development strategy.  Where investment and capital flow mostly from extra-national sources, the benefits of resulting development are generally captured by the national government instead of local government and private parties. As a result, local economic development is much more a matter of national concern and planning than local concern, thus taking it out of the municipal planning universe.

This stands in marked contrast to the model of local and regional economic development planning in the United States, where cities compete with other cities in the regions, and regions compete with neighboring regions for capital and labor flows. This situation has led to a variety of development-inducing incentive policies offered by cities and states to draw resources away from competing places. Such incentives are not unknown in the developing country context – certainly developing countries compete with other developing countries for foreign investment, incentivizing investment with cheap labor, among other things. However, these international incentive policies will differ greatly from intra-national incentives because of the special rules and restrictions on international lending and investment, set and governed (more or less) by institutions such as World Bank, the IMF, and customary international law and the structure of the international market. Within the United States, on the other hand, the rules for inducing investment are also controlled and ordered by laws, but these laws are very different from international rules. Therefore, the lessons and tactics of inducing investment in developed countries must be applied with caution and a sharp eye to applicable rules in the developing country context.


                  Though this briefing has focused on the differences between developed and less-developed countries in economic development planning, there are many similarities that should not be overlooked. Just as it is foolish to blindly apply development schemes of more-developed to less-developed countries, so would it be wasteful to think that none of the lessons or experiences could apply. Indeed, in many ways (though this is not an across-the-board generalization!) the pattern of development seen today in less developed countries has been experienced in the United States and other more-developed countries, a half-century ago. In this, I speak of the trends of urbanization, industrialization, and slum-conditions evident in so many cities from the industrial revolution through the mid-century. Certainly some of our historical experience is relevant to the present-day problems faced in developing countries. The point here is simply that such applications must be made sensitively and on a case-by-case basis, without falsely assuming similarities (or dichotomous differences) between the developed and developing contexts.  

[1] World Bank Urban Development Website: (Standards for finance; priority issues, etc),,menuPK:337184~pagePK:149018~piPK:149093~theSitePK:337178,00.html; World Bank. World Development Report 2004: Making Services Work for Poor People. World Bank, Washington D.C.: 2003.

[2] See generally McAuslan, Patrick, Ed. 2003. Bringing the Law Back In: Essays in Land, Law, and Development. London: Ashgate; Kasarda, John D. and Allan M. Parnell, eds. 1993. Third World Cities: Problems, Policies, and Prospects. London: Sage Publications; Drakakis-Smith, David. 2000. Third World Cities (2nd Ed.). London:  Routledge.

[3] For a fascinating case-study of this and related phenomena in Africa, see: West, Henry. 2000. On African Land Holding – A Review of Tenurial Change and Land Policies in Anglophone Africa. Lewiston, NY: Edwin Mellon Press, Lewiston.

[4] For a startling and recent example, see Wines, Michael. “In Zimbabwe, Thousands of Homeless, Hiding in Full Sight, Belie Leader's Denials” (11/13/2005). Online at, accessed 11/13/2005.

[5] See UN Habitat Program Website:

[6] For a comprehensive overview of this topic, see Buckley, Peter J. and Jeremy Clegg, Eds. 1991. Multinational Enterprises in Less Developed Countries. London: McMillan. Also see: Lewellen, Ted. 1995. Dependency and Development: An Introduction to the Third World. Westport: Greenwood Publishing.

[7] World Development Report 2004, supra note 1; UNDP Website:

[8] Gooneratne, Wilbert and R.A. Obudho, eds. 1997. Contemporary Issues in Regional Development Policy: Perspectives from Eastern and Southern Africa. Aldershot, England: Ashgate Publishing.