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Unformatted text preview: 14 | P a g e to manufacturing. The government would have to facilitate this process by helping to create the conditions needed to allow this to happen such as: - the speation and promotion of specific primary sector areas which would allow a surplus income to be created and for that to be saved. This ties in with the Ricardian idea of speing into the area of comparative advantage. - This could be achieved through raising agricultural productivity. It could also be best done through exporting this surplus agriculture to generate incomes to save. - It needed to foster a basic financial sector to allow these funds to be saved and then loaned back out to create the possibility for reinvestment. This “stages of growth” model was further supported by the Harrod-Domar economic growth model developed in the early 1940s to explain how rates of economic growth depended on the savings ratio of the economy and the productivity of its investments, stemming from Keynesian analysis of the flow of income in an economy. The take-off could take between 10-50 years on Rostow’s account and would again occur in speed manufacturing areas (unbalanced growth) rather than more widely in the economy, following the Ricardian idea. As the investment built up to 10-20% of GDP over time other industries would become attainable and the manufacturing would be able to diversify as well allowing even faster rates of growth and it would take 50-100 years to drive to maturity. Finally in the age of mass consumption the tertiary sector would expand until it reached the 65-75% of GDP that we see in modern Western societies. The Lewis-Clark theory ( Theory of Economic Growth 1955) of urbanisation also develops this idea of STRUCTURAL CHANGE as the key to development but instead sees it from the perspective of the labour market in the nation. Many developing nations have abundant labour which is unproductive in agriculture for much of the year. As the wage level that they can command is close to zero in the primary sector then as the basic manufacturing industries start to develop there will start to be a wage premium in those sectors above that available in agriculture due to the higher productivity of workers using capital in those areas. Once this hits a critical level (they thought around 30%) it will encourage the migration of workers to the areas which are “industrialising”. This will raise the productivity and wages available to those who remain in the agricultural sector (assuming constant population!) and reduce wage levels in industry. This creates an URBANISATION momentum which increases profitability in industry and promotes investment further as a part of the take-off. Gunner Myrdal (1957) and Albert Hirschmann (1958) were the first critics of this kinf of wage equilibrium analysis pointing out that significant backwash effects from migration could accentuate wage inequalities between the sectors rather than seeing them converge....
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This note was uploaded on 02/08/2012 for the course BUS 104 taught by Professor Johnson during the Spring '11 term at FIU.
- Spring '11