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A7 Economic Development MWF 3pm-5pm
BSA -1A
CHAPTER 3. 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
FOUR APPROACHES
Post World War II
1.Linear stages of growth
2.Theories and patterns of structural change
3.International-dependence revolution
4.Neo-classical, free market Counterrevolution
POST WORLD WAR II

- Struggle to rebuild
- Postwar economic boom
- Demand for consumer goods
- Flowing foreign aid to countries like PH
- PH context: Bell Trade Act (no import duties for US products)
I. LINEAR STAGES THEORY

Rostow’s Stages of Growth
 Traditional Society: This stage is characterized by a subsistent,

agricultural-based economy with intensive labor and low levels of trading,
and a population that does not have a scientific perspective on the world and
technology.
 Preconditions to Take-off: Here, a society begins to develop
manufacturing and a more national/international—as opposed to regional—
outlook.
 Take-off: Rostow describes this stage as a short period of intensive growth,
in which industrialization begins to occur, and workers and institutions
become concentrated around a new industry.
 Drive to Maturity: This stage takes place over a long period of time, as
standards of living rise, the use of technology increases, and the national
economy grows and diversifies.
 Age of High Mass Consumption: At the time of writing, Rostow believed
that Western countries, most notably the United States, occupied this last
"developed" stage. Here, a country's economy flourishes in a capitalist
system, characterized by mass production and consumerism.
* Developed countries already passed all stages. Underdeveloped in traditional and

preconditions stage should just follow rules of dev’t to self-sustaining economy.
The Harrod-Domar Growth Model

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• the rate of growth of GDP ( Y/Y) is determined jointly

by the net national savings ratio, s, and the national
capital-output ratio, c.
* To grow, economies must save and invest
* Other components: labor force growth & technological progress
• Sample:
• Countries able to save 15% to 20% would develop faster
II. STRUCTURAL CHANGE MODELS 2-SECTOR SURPLUS MODEL/LEWIS

THEORY OF DEVELOPMENT
The Lewis model of economic development postulates two sectors, the
subsistence and the modern. This has often been interpreted as agriculture and
industry, although Lewis himself meant a broader class of subsistence, which
included agricultural labour, the urban poor, domestic servants and so on.
In the Lewis model, the underdeveloped economy consists of two sectors:

A rural subsistence sector characterized by zero marginal labor
productivity—in the sense that surplus labour can be withdrawn from the
agricultural sector without any loss of output.
A high-productivity modern urban industrial sector into which labor from the
subsistence sector is gradually transferred.
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
III. INTERNATIONAL-DEPENDENCE REVOLUTION

1970s – International-dependence models gained support because of
disenchantment w/ stages and structural-change models
• Resurgence in various forms in the 21st century Developing countries caught in a
dependence and dominance relationship with rich countries because of institutional,
BSA -1A
political and economic rigidities = difficulty for poor nations to be self-reliant and
independent
1. NEOCOLONIAL DEPENDENCE MODEL

- Indirect outgrowth of Marxist thinking
- Underdevelopment as result of historical evolution of highly unequal international
capitalist system of rich country-poor country relationships
- Regardless if intentional, nations are under unequal power relations between the
center and the periphery
Theotonio Dos Santos: Dependence as conditioning situation; Expand based on

expansion of dominant countries; Dominant countries w/ technological, commercial,
capital and sociopolitical predominance can exploit and extract local surplus;
Dependence as based on the international division of labor – industrial development
in some and restricted in others
2. FALSE-PARADIGM MODEL
- less-radical
- Underdevelopment as result of faulty and inappropriate advice by well-meaning,
though uninformed or biased advisers from developed country agencies and orgs
- Inappropriate policies merely serving vested interests of existing power groups
(domestic and international)
- Intellectuals, economists, civil servant
3. DUALISTIC-DEVELOPMENT THESIS
Dualism – divergence between rich and poor nations or rich and poor peoples on
various levels
IV. NEOCLASSICAL COUNTERREVOLUTION

Neoclassical counterrevolution
- Challenges statist models in favor of free markets, public choice & market-
friendly approaches
- Developed nations: favored supply-side macroeconomic policies, rational
expectations theories and privatization of public corporations
- Developing countries: freer markets and dismantling of public ownership,
statist planning and government regulation
3 component approaches
1. Free-market approach - markets alone are efficient; competition is
effective, technology and information freely available and costless; gov’t is
counterproductive
2. Public choice approach - new political economy approach; governments
do nothing right because of selfish interests; misallocation of resources
3. Market-friendly approach – imperfections in economy and need gov’t
for market-friendly interventions (social services and climate for private
enterprise); acceptance of market failures
Traditional Neoclassical Growth Theory

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Liberalization – opening up of markets, draw investment and increase rate

of capital accumulation Solow neoclassical growth model - economies to
converge to same income level if same rates of savings, depreciation, labor
force and productivity growth.
Source of output growth: labor quantity and quality, increase in capital
and technology improvement
Openness – encourages access to foreign production ideas and
technological progress
BORJA, PRINCESS ICEA G.
CABOTEJA, JOHN PAUL L.
REPORTERS

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A7 Economic Development MWF 3pm-5pm

CHAPTER 3. Classic Theories Of Economic Growth and Development

POST WORLD WAR II

I. LINEAR STAGES THEORY

 Traditional Society: This stage is characterized by a subsistent,

* Developed countries already passed all stages. Underdeveloped in traditional and

The Harrod-Domar Growth Model

• the rate of growth of GDP ( Y/Y) is determined jointly

II. STRUCTURAL CHANGE MODELS 2-SECTOR SURPLUS MODEL/LEWIS

In the Lewis model, the underdeveloped economy consists of two sectors:

PATTERNS OF DEVELOPMENT ANALYSIS

III. INTERNATIONAL-DEPENDENCE REVOLUTION

1. NEOCOLONIAL DEPENDENCE MODEL

Theotonio Dos Santos: Dependence as conditioning situation; Expand based on

IV. NEOCLASSICAL COUNTERREVOLUTION

Traditional Neoclassical Growth Theory

Liberalization – opening up of markets, draw investment and increase rate

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