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Comparison of Development Theories

The document summarizes several classical theories of economic growth and development: 1) Classical theory focused on natural order determining prices, competition promoting the public interest, and capital accumulation through savings driving output and wages. 2) Rostow's linear stages theory viewed development as a process involving stages from traditional to high mass-consumption. 3) Structural change models emphasized the transfer of labor from rural agricultural sectors to urban industrial sectors, and the transformation of economic structures to enable new industries to drive growth. 4) Dependence theories argued that underdeveloped countries remained dependent on wealthy capitalist countries, with domestic elites perpetuating this unequal international system against the interests of genuine reform and development.

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Jester Leonor
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842 views16 pages

Comparison of Development Theories

The document summarizes several classical theories of economic growth and development: 1) Classical theory focused on natural order determining prices, competition promoting the public interest, and capital accumulation through savings driving output and wages. 2) Rostow's linear stages theory viewed development as a process involving stages from traditional to high mass-consumption. 3) Structural change models emphasized the transfer of labor from rural agricultural sectors to urban industrial sectors, and the transformation of economic structures to enable new industries to drive growth. 4) Dependence theories argued that underdeveloped countries remained dependent on wealthy capitalist countries, with domestic elites perpetuating this unequal international system against the interests of genuine reform and development.

Uploaded by

Jester Leonor
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Classic Theories

of Economic
Growth and
Development
INTRODUCTION

EVERY NATION
STRIVES FOR DEVELOPMENT
But economic progress is not the only
component
DEVELOPMENT > material &
financial
Widespread realization = national context +
international economic + social system
Theories of economic development
Theory – systematic explanation of
interrelationships among economic
variables.
Purpose – to explain causal
relationships among these variables,
to understand world better and
provide basis for policy.

CHAPTER 5©E.Wayne Nafziger Develo 3


pment Economics
Classical theory

CHAPTER 5©E.Wayne Nafziger Develo 4


pment Economics
Classical theory
• Natural order determines price, rent, &
economic affairs.
• Competitive economy promotes public
interest.
• Freedom from government restriction.
Institutions to supply money.
• Capital accumulation (savings) – output –
wages.
• Division of labor – related to market size.

CHAPTER 5©E.Wayne Nafziger Develo 5


pment Economics
Classical theory (Cont)
• Free trade.
• Diminishing returns.
• Iron law of wages.
• Formulated amid scientific
discoveries & technical
change.
• Major flaws – population
theory & lack of
technological change.
CHAPTER 5©E.Wayne Nafziger Develo 6
pment Economics
LINEAR
STAGES THEORY
LINEAR STAGES THEORY

DEVELOPMENT AS GROWTH
Post-war interest on poor nations
- Economists had no conceptual apparatus for largely
agrarian countries w/o modern economic structures
Strands of thought
- Marshall Plan: US financial and technical
assistance to war-torn European countries
- All modern industrial nations were once
underdeveloped agrarian societies
LINEAR STAGES THEORY

Rostow’s
Stages
of
Growth

* Developed countries already passed all stages. Underdeveloped in


traditional and preconditions stage should just follow rules of dev’t to
self-sustaining economy
I. LINEAR STAGES THEORY

PROBLEMS:
• Mechanisms of development embodied in the
theory DOES NOT ALWAYS WORK
• WHY? More savings and investment are not
sufficient
• Worked for Europe because of necessary
structural, institutional, and attitudinal conditions
STRUCTURAL
CHANGE
MODELS
STRUCTURAL CHANGE

2-SECTOR SURPLUS MODEL/


LEWIS THEORY OF DEVELOPMENT
- Structural transformation of a subsistence economy
• Presence of 2 sectors: overpopulated rural sector w/
zero marginal labor productivity and a high-productivity
industrial sector
• Transfer of labor from traditional to modern, growth of
product output
STRUCTURAL CHANGE

PATTERNS OF DEVELOPMENT ANALYSIS


- Economic, industrial and institutional structure of an economy
transformed to permit new industries as engine of growth
-
Capital accumulation + changes in economic structure needed
-
Constraints (affect level of dev’t): Internal - resources,
population size, government policies; External – access to
capital, technology, trade (countries as part of internatl system)
-
Empirical work of Harvard economist Holllis Chenery and his
colleagues, cross-sectional and time-series studies of
countries at diff. levels of per capital income, identified
characteristic features of the development process:
STRUCTURAL CHANGE

PATTERNS OF DEVELOPMENT ANALYSIS


• Shift from agri to industrial production
• Steady accumulation of physical and human capital
• Change in consumer demand from basic necessities to diverse
manufactured goods
• Growth of cities and urban industries
• Decline in family size ad overall population

- Proponents of structural change model prefer “facts to speak for


themselves” unlike theories such as stages of growth
INTERNATIONAL-
DEPENDENCE
EVOLUTION
INTERNATIONAL-DEPENDENCE

EVOLUTION

1. NEOCOLONIAL DEPENDENCE MODEL


- Small elite ruling class (landlords, entreps, military rulers,
merchants, public officials, etc.) interests (knowingly or not) to
perpetuate the international capitalist system of inequality
-
The elite serve or are rewarded by international special-
interest power groups tied by allegiance or funding to wealthy
capitalist countries
-
Elites’ viewpoints inhibit genuine reform efforts and may lead to
even lower levels of living and perpetuation of
underdvelopment
-
External-induced against internal constraints

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