CLASSIC THEORIES OF ECONOMIC reached through the completion of the

DEVELOPMENT previous stage. He asserts that all developed

countries have gone through these stages and
Development as perceived. . . . developing countries are in one of these
Development should be the priority of any stages. These stages are as follows:
country. Its accomplishment rests on the
shoulders of the government and the citizens Rostow Stages of Growth Models
of the country. Development goes beyond the
financial stability of a country; whether its GDP 1. The Traditional Society: this is mostly a
is outstandingly progressive over a period of backward society with no access to science
time or not. So far, it is general knowledge that and technology where most of its resources
the development of any country encompasses are dedicated to agricultural use. Agricultural
both the wellbeing of its finances and its productivity is mostly at the subsistence level
citizenry. For development to be achieved, a and there is limited market interaction.
country has to undergo certain changes in its 2. Preparatory Stage: Here, there is an
social and administrative institutions, political expansion in output which extends beyond
conditions, moral values, etc. The main goals agricultural produce to manufactured goods.
of development are as follows: improving the As a result of better savings and investment in
quality of life of citizens; growth of gross education there is more knowledge
national product (GNP); and promoting surrounding the use of technology in various
sustainable development. sectors of the economy. In this stage there are
lower levels of market specialization.
Several theories have been formulated in 3. Take-off stage: at this stage revolutionary
order to explain the changes that occur in changes occur in both agriculture and industry
underdeveloped countries in an attempt to to attain a self-sustaining economic growth.
achieve overall growth. There is greater urbanization and rise in
human capital accumulation.
➢ The Linear-Stages-of-Growth Model 4. Drive to maturity: this stage takes place
➢ Structural-Change Model after a long period of time. The population
➢ The International- Dependence Revolution involved in agriculture declines while industry
➢ The Neoclassical Counterrevolution becomes more diverse. Overall income per
capita increases. The rate of savings and
Linear-Stages-of-Growth Models investments is such that it can automatically
sustain economic growth.
The linear stages of growth models are the 5. Stage of Mass Consumption: at this stage
oldest and most traditional of all development a country’s demand shifts from food, clothing
plans. It was an attempt by economists to and other basic necessities to demand for
come up with a suitable concept as to how luxuries. To satisfy these needs new industries
underdeveloped countries of Asia, Africa and involve their selves in mass production to
Latin America can transform their agrarian match consumption.
economy into an industrialized one.
Harrod-Domar Growth Model: This model
The most popular of the linear stage models was developed independently by Roy F.
are Rostow’s Stages of Growth Model and the Harrod in 1939 and Evsey Domar in 1946.The
Harrod-Domar Growth Model. Harrod-Domar model is an early
post-Keynesian model of economic growth. It
Rostow’s Stages of Growth Model: This is used in development economics to
approach was formulated by American explain an economy's growth rate in terms of
Economist Walt Whitman Rostow (1916-2003). the level of saving and productivity of
He argued in his model that the transition into capital (Todaro & Smith, 2009).
development occurs in a series of stages.
Each stage can only be
The Harrod-Domar model is based on the Three major streams of thoughts can be
following assumptions: sorted out:
❖ Neo-Colonial Dependence: In this
• Laissez-faire; where there is no government systems rich countries are intentionally
intervention exploitative or unintentionally neglectful and
• A closed economy; no participation in foreign the international system is dominated by
trade unequal power relationship between the centre
• Capital goods do not depreciate as they and the periphery. This makes it difficult for the
possess a boundless timeline poor nations to develop.
• Constant marginal propensity to save ❖ The False-Paradigm Model: Attributes
• Interest rate remains unchanged, etc. underdevelopment to faulty and in appropriate
advice provided by well-meaning but often
Structural-Change Model uninformed, ethnocentric international experts
from developed countries or multinational
The structural change model demonstrates donors.
how a country’s economy transforms from the ❖ The Dualistic- Development Thesis: It
subsistence level which is concerned with represents the existence and persistence of
agricultural produce for personal consumption substantial and even increasing divergencies
to a modern industrial economy with greater between rich and poor nations and rich and
output for worldwide consumption. poor peoples on various levels.

In order to illustrate the structural change The Neoclassical Counterrevolution

model, we’ll consider two approaches, they
are: Advocate freer markets and the dismantling of
public ownership, central planning by the state
• Two-sector surplus labor theoretical model and government regulation of economic
which was developed by Nobel Laureate W. activity. Underdevelopment results from poor
Arthur Lewis: as the name implies considers resource allocation due to incorrect pricing
two sectors in an underdeveloped economy, policies and too much state intervention of
they are an overpopulated rural agricultural overly active developing country governments-
sector with marginal labor productivity equal to thus slowing the pace of economic growth.
zero. This challenge can be divided into three
component approaches:
• Patterns of development analysis
formulated by Hollis B. Chenery: Chenery’s 1. Free market approach analysis argues that
model defines economic development as a set markets alone are efficient – as prices of
of interrelated changes in the structure of an products and factors reflect the accurate
underdeveloped economy that are required for scarcity values of goods and resources –
its transformation from an agricultural competition is effective if not perfect –
economy into an industrial economy for technology is freely available and nearly
continued growth in addition to accumulation costless to absorb – information is also perfect
of capital both human and physical (Chenery, and nearly costless to obtain – under these
1960). conditions any intervention by the government
is a distortion.
The International-Dependence Revolution 2. Public-choice theory – also the new political
economy approach – politicians, bureaucrats,
Developing countries face institutional, political citizens and states act solely from a
and economic rigidities, both on the domestic self-interested perspective using their power
and the international front and are caught in a and authority – resulting in corruption and
dependence and dominance relationship with mis-allocation of resources.
rich countries. 3. Market-friendly approach - recognizes that
there are many imperfections in the LDC
product and factor markets and that
governments do have a key role to play in The Brundtland Definition (1987)
facilitating the operation of markets through - Sustainable development is
non-selective (market friendly) interventions- development that meets the needs of
for example investing in physical and social the present without compromising the
infrastructure, health care facilities and ability of future generations to meet
educational institutions and by providing a their own needs.
suitable climate for private enterprise. WHAT IS ECONOMIC DEVELOPMENT?

The Dynamics of Development Development is a multi-dimensional process

involving changes in social structures, popular
Development is not an easy process. attitudes, and national institutions, as well as
the acceleration of economic growth, the
The sooner we realize that development is a reduction of inequality, and the eradication of
long process involving socio-economic poverty. (Todaro and Smith)
changes and requiring hard work and
sustained effort of working and solving our
economic problems.

In this age of instants, it seems many of us

demands instant development. Unfortunately,
there is no such thing as “instant
development.”

It takes time for man to grow from a child to

adult. Also, a rose to bloom in all its beauty
and splendor.

Development is a sustained effort.

Because development is a sustained effort

over a long period of time, the changes that
are brought about are never simple.

The change in one thing can lead into a

movement in others, which in turn can cause
further changes in the one initiating the
change. Simply, such change in any part of
society or the economy are bound to influence
the movement of the other parts.

WHAT IS A SUSTAINABLE
Economic Growth and Development
DEVELOPMENT?
Growth means increases in output or
production. Economic development means
both more output or production and changes in
the technical and institutional arrangements by
which the factors of production are produced
and distributed.

Characteristics of Less Developed

Countries
1. Developing countries are still poor. POVERTY, INEQUALITY, AND
2. Developing countries are agrarian rather DEVELOPMENT
than industrial.
3. Income is more inequitably distributed in What is Poverty?
developing countries. - Poverty is deprivation of those things
4. The bulk of exports in developing countries that determine the quality of life,
include only few products and agricultural in including food, clothing, shelter, and
nature. safe drinking water, but also such
5. Most manufactured products of developing “intangibles” as the opportunity to
countries are imported. learn and to enjoy the respect of fellow
citizens.
Economic development of any nation
can be characterized by the following: What is Inequality?
(1)increases in output or production - Economic Inequality is the
has to be sustained over a long period of time; fundamental disparity that permits an
(2)changes in economic structure would individual certain material choices,
spread out in the entire economy; and while denying other individuals those
(3)growth has to be accompanied by an very same choices.
increase in efficiency.
Causes of Poverty
Structural Changes in the Economy and - Decline in overall national growth
Society - Political Instability
The structure of the economy refers to the way - Natural Disasters
the elements or units of the system are related - Corruption
to one another and to the whole. - Socio-Economic disparities
1. Development is the process by which the - Lack of access to education
per capita real income increases on a - Lack of Infrastructure
sustained basis over a long period of time. - Lack of relevant laws and
2. Development means that the structure of administrative procedures
the economy should change from that of being - Lack of access to investments and
agrarian to that of industrial economy. credit, complete market information
3. Development means that there should be
an equitable distribution of income and wealth. Types of Poverty
4. Development means that in the international a. Absolute Poverty
trade, a nation should become more - (Destitution) it refers to the state of
competitive in its relationship with other severe deprivation of basic human
nations. needs
5. Development means advances in b. Relative Poverty
productivity, science, and technology. - It is defined contextually as economic
6. Development means structural changes in inequality in location or society in
society. which people live

Development demands the desire and the What’s so bad about high inequality?
motivation to improve our present economic 1. Extreme income inequality leads to
situation. economic inefficiency.
2. Extreme income disparities undermine
Economic development is shaped not only by social stability and solidarity.
economic factors but also by non-economic 3. Extreme inequality is generally viewed as
factors like environmental, social, and cultural unfair.
conditions of the economy.
Economic Characteristics of High Poverty
Groups
- Rural Poverty
- Women and Poverty
- Ethnic Minorities, Indigenous
Population, and poverty

Why Measure Poverty?

- Measures of poverty and low income
are some of the most important social
statistics in any society- on a level with
GDP, the employment rate and
household income
- Need reliable, comprehensive and
comparable measures of low income
to:
- track well-being and living conditions
of least well-off;
- assess the vitality of the economy
and social life;
- inform the development poverty Growth and Poverty
reduction policies and programs; and (Five reasons why policies should be focused
- provide clear benchmarks against on reducing poverty levels)
which to monitor progress in improving
lives and prospects of the poor 1. First, widespread poverty creates conditions
in which the poor have no access to credit...
The Human Poverty Index is an 2. Second, the rich in many contemporary
indicator of the standard of living in a poor countries are generally not noted for their
country, developed by United Nations frugality or for their desire to save and invest...
(UN) to complement the Human 3. Third, the low incomes and low levels of
Development Index (HDI) and was living for the poor, which are manifested in
first reported as part of Human poor health, nutrition, and education, can
Development report in 1997. It was lower their economic productivity and thereby
considered to better reflect the extent lead directly and indirectly to a slower-growing
of deprivation in developed countries economy...
compared to HDI. In 2010, it was 4. Fourth, raising the income levels of the poor
supplanted by the UN’s will stimulate an overall increase in the
Multidimensional Poverty Index. demand for locally produced necessity
products...
The HPI concentrates on the 5. Fifth and finally, a reduction of mass poverty
deprivation in the three essential can stimulate healthy economic expansion by
elements of human life already reflect acting as a powerful material and
in the HDI: Longevity, Knowledge, and psychological incentive to widespread public
a decent Standard of Living. participation in the development process.

Impact of Economic Growth on Poverty

- Economic Growth is important for
higher the income of poor people and
also their living standards
- Mostly, the higher levels of per capita
GDP will mean that the typical person
has a better diet, improve health and
access to medical services, longer life
 expectancy and greater educational
opportunity.
Policy Options: Some Basic
Considerations

Areas of Intervention

1. Altering the functional distribution – the

returns to labor, land, and capital as
determined by factor prices
2. Mitigating the size distribution – the
functional income distribution
3. Moderating (reducing) the size distribution
at the upper levels through progressive
taxation of personal income and wealth
4. Moderating (increasing) the size distribution
at the lower levels through public expenditures
of tax revenues

Policy Options
1. A set of policies geared towards the
promotion of indigenous technological
research and development of efficient,
labor-intensive methods of production.
2. A set of policies to bring about structural
changes which will increase the chances of
improving the living conditions of the masses
of rural and urban poor.
3. A set of policies to modify the size
distribution of income at the upper levels
through the enforcement of legislated
progressive taxation on incomes and wealth.
4. A set of policies to directly improve the
well-being of the poor and their communities.