development models - rostow
Rostow
This is a linear theory of development. Economies can be divided into primary secondary and tertiary sectors. The history of developed countries suggests a common pattern of structural change:
Stage 1 Traditional Society
Characterised by subsistence economic activity ie output is consumed by producers rather than traded, but is consumed by those who produce it; trade by barter where goods are exchanged they are 'swapped'; Agriculture is the most important industry and production is labour intensive, using only limited quantities of capital.
Stage 2 Transitional Stage
The precondition for takeoff. Surpluses for trading emerge supported by an emerging transport infrastructure. Savings and investment grow. Entrepreneurs emerge.
Stage 3 Take Off
Industrialisation increases, with workers switching form the land to manufacturing. Growth is concentrated in a few regions of the country and in one or two industries. New political and social institutions are evolve to support industrialisation.
Stage 4 Drive to Maturity
Growth is now diverse supported by technological innovation.
Stage 5 High Mass Consumption
Implications of Rostow's theory
Development requires substantial investment in capital equipment; to foster growth in developing nations the right conditions for such investment would have to be created ie the economy needs to have reached stage 2.
For Rostow
o Savings and capital formation (accumulation) are central to the process of growth hence development
o The key to development is to mobilise savings to generate the investment to set in train self generating economic growth.
o Development can stall at stage 3 for lack of savings – 15-20%
of GDP required.
If S = 5% then aid/loan = 10-15% plugs ‘savings gap’. Resultant
investment means a move to stage 4 Drive to Maturity and self generating
economic growth
Limitations of Rostow's Model
Rostow's model is limited. The determinants of a country's stage of economic development are usually seen in broader terms ie dependent on:
o the quality and quantity of resources
o a country's technologies
o a countries institutional structures eg law of contract
Rostow explains
the development experience of Western countries, well. However, Rostow
does not explain the experience of countries with different
cultures
and traditions eg Sub Sahara countries which have experienced little
economic development.
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