Economic DevelopmentEconomic Development
Economic developmentEconomic development isis
the the
developmentdevelopment of the of the economic wealtheconomic wealth of a of a country.country.
It is reflected in the It is reflected in the well-beingwell-being of people. of people.
It It also implies also implies
a change in thea change in the
technological technological and and institutional organizationinstitutional organization
of of productionproduction
as well as in the as well as in the distributive patterndistributive pattern of of incomeincome..
Economic GrowthEconomic Growth
and and
EconomicEconomic development development
are two different terms. are two different terms.
Economic GrowthEconomic Growth is an is an increaseincrease in in a a country’s GNPcountry’s GNP. .
It is reflected in the It is reflected in the growthgrowth of the of the country'scountry's outputoutput of of goods goods and and servicesservices..
Economic developmenEconomic development t
implies implies
a change in the a change in the socio-economic structuresocio-economic structure of a country. of a country.
It is reflected in a It is reflected in a declinedecline in in agricultureagriculture and and a continuous increase in a continuous increase in industryindustry, , tradetrade,, bankingbanking, , constructionsconstructions and and servicesservices. .
CHARACTERISTICS OF CHARACTERISTICS OF DEVELOPMENTDEVELOPMENT
IndustrializationIndustrialization.. Technology.Technology. HumanHuman ResourceResource(skills, qualifications…)(skills, qualifications…) NaturalNatural ResourcesResources.. EducationEducation and and LiteracyLiteracy
CHARACTERISTICS OF CHARACTERISTICS OF UNDERDEVELOPMENTUNDERDEVELOPMENT..
PovertyPoverty.. A High Percentage of the Population engaged in A High Percentage of the Population engaged in
AgricultureAgriculture.. The use of old age The use of old age productionproduction processes. processes. UnemploymentUnemployment.. IlleteracyIlleteracy. . A High rate of A High rate of ImportImport A Low rate of A Low rate of ExportExport
..
Rostow’s Stages of Economic Rostow’s Stages of Economic DevelopmentDevelopment
In 1960, the American Economic and In 1960, the American Economic and Historian, WW Rostow suggested that Historian, WW Rostow suggested that
countries passed through five stages of countries passed through five stages of economic development.economic development.
Stage 1 Traditional SocietyStage 1 Traditional Society
OutputOutput is is consumedconsumed rather than rather than tradedtraded. .
TradeTrade is carried out by is carried out by barterbarter. .
AgricultureAgriculture is the most important is the most important industry.industry.
Low Low capitalcapital. .
Traditional methods of Traditional methods of productionproduction..
Stage 2 Transitional Stage Stage 2 Transitional Stage (the preconditions for takeoff)(the preconditions for takeoff)
An Increase in An Increase in specialisationspecialisation. .
An emergence of An emergence of transporttransport infrastructureinfrastructure to facilitate to facilitate tradetrade. .
An increase in An increase in savingssavings, , capitalcapital and and investmentinvestment. .
Stage 3 Take OffStage 3 Take Off
An increase in An increase in IndustrialisationIndustrialisation..
WorkersWorkers switch from the switch from the agriculturalagricultural sector sector to the to the manufacturingmanufacturing one. one.
An increase in An increase in investmentinvestment and and incomes incomes which which generate more generate more savingssavings to to financefinance
further further investmentinvestment..
Stage 4 Drive to MaturityStage 4 Drive to Maturity
A A diversifieddiversified EconomyEconomy. .
TechnologicalTechnological innovationinnovation leading to great leading to great investmentinvestment opportunitiesopportunities. .
ProductionProduction of a wide range of of a wide range of goodsgoods and and servicesservices..
A less reliance on A less reliance on importsimports. .
Stage 5 High Mass ConsumptionStage 5 High Mass Consumption
A high mass A high mass consumptionconsumption..
The The serviceservice sector dominates the sector dominates the economyeconomy..
Limitations of Rostow’s TheoryLimitations of Rostow’s Theory
Many economists argue that Many economists argue that
Rostows's model is too general and limited.Rostows's model is too general and limited.
It does not set down the pre-conditions for It does not set down the pre-conditions for growth growth and the and the stagesstages are not clearly identified. are not clearly identified.
Thus, Thus,
it is not very helpful for the understanding of it is not very helpful for the understanding of Economic Development.Economic Development.
Perhaps its importance is to highlight the need for Perhaps its importance is to highlight the need for investmentinvestment to the to the emergenceemergence of the of the economy economy of of
any country. any country.
Other Theories of Development
Bruno Hilderbrand theory of Bruno Hilderbrand theory of development development
The process of The process of developmentdevelopment starts with the starts with the evolutionevolution of the means of of the means of exchangeexchange
from:from: BARTERBARTER to to MONEYMONEY to to CREDITCREDIT
KARL BUCHER theory on KARL BUCHER theory on ECONOMIC DEVELOPMENTECONOMIC DEVELOPMENT
The The expansionexpansion of the of the economyeconomy starts from: starts from:
HOMEHOME to to
TOWNTOWN to to
NATIONNATION
GENERAL THEORIES OF GENERAL THEORIES OF DEVELOPMENT AND DEVELOPMENT AND
UNDERDEVELOPMENTUNDERDEVELOPMENT
1- The Viscious Circle.
According to this theory the causes of underdevelopment are interconnected so
they form a viscious circle. Low Income leads to Low Saving.Low Saving leads to Low Investment.
Low Investment leads to Low Productivity.
Low Productivity leads to Low Income.
2- Dualistic Economies
This theory states that
People from underdeveloped regions
are not motivated towards work and do not respond to monetary incentives.
This leads to the existence of a system of dual economies.
This means that there are two sectors in the economy.
The first is in the hands of foreigners.
It is effecient and well managed. The second is run by the people of the
country.
It is traditional and ineffecient.
3-The Classical Theory
The founder of this theory was Adam Smith.He claimed that development goes through a
process.Division of Labour increases Productivity.Productivity increases National Income.
The increase in National Income leads to an expansion of the market.
The expansion of the market leads to innovation and growth.
4- Lump-Sum Capital and Vent for Surpluses
This theory suggests that the small size of the market is the major cause of
underdevelopment.
Thus, large sums of capital are needed
to build up the infrastructure to create new markets where
economies can take place
and innovations and competition
are encouraged.
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