ECO2117 - Chapter 3 Classic theories of economic growth and development

This preview shows page 1 - 11 out of 23 pages.

Classic Theories of Economic Growth and Development
Classic Theories of Economic Development: Four Approaches 1.Linear stages of growth model2.Theories and patterns of structural change3.International-dependence revolution4.Neoclassical, free market counterrevolution
Development as Growth and Linear-Stages TheoriesA Classic Statement: Rostows Stages of GrowthAccording to Rostow, the transition from underdevelopment to development can be described in terms of a series of steps or stages through which all countries must proceed:9Traditional society 9Preconditions for take-off into self-sustaining growth9Take-off9Drive to maturity9Age of high mass consumption
Development as Growth and Linear-Stages TheoriesHarrod-Domar Growth Model (sometimes referred to as the AK model):A functional economic relationship in which the growth rate of gross domestic product (g) depends directly on the national net savings rate (s) and inversely on the national capital-output ratio (c).
The Harrod-Domar ModelSimplified Version
The Harrod-Domar ModelSimplified Version
Equation 3.7 is also often expressed in terms of gross savings, in which case the growth rate is given by(3.7’)where δ is the rate of capital depreciation The Harrod-Domar ModelIncorporating Capital Depreciation
Criticisms of the Stages ModelThe mechanisms of development embodied in the theory of stages of growth do not always work. Saving and investment are necessary conditions for accelerated rates of economic growth but not sufficient conditions.

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture