ade theory2

8/6/2019 ade theory2

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Classic Theories of

Economic Growth and

AEB 4906

Develo ment Economics

http://danielsolis.webs.com/aeb4906.htm


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Theorists of the 1950s and earl 1960s viewed the

process of development as a series of successivestages of economic growth through which all countries

.

It was primarily an economic theory of development in,investment, and foreign aid were all that was necessaryto enable developing nations to proceed along an

econom c grow pa a s or ca y a eenfollowed by the more developed countries.

eve opmen us ecame synonymous w rap ,

aggregate economic growth.


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The postWorld War II literature on economicdevelopment has been dominated by 4 majoran some mes compe ng s ran s o oug :

- - - ,

(2) theories and patterns of structural change,

e n erna ona - epen ence revo u on, an(4) the neoclassical, free-market counterrevolution.


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The model postulates that economic modernization occursin five basic stages, of varying length:

Preconditions for take-off:

-

Drive to maturity:

Age of High mass consumption:


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.

Preconditions for take-off: education, capital mobilization,establishment of banks and currency, entrepreneurial andmanufacturing develops.

Take-off: occurs when sector led growth becomes common and

Drive to maturity: refers to the need for the economy itself todiversify

Age of High mass consumption: refers to the period ofcontemporary comfort afforded many western nations,

,

remember the subsistence concerns of previous stages .


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investment spending in GDP.

That is: the growth rate of GDP depends

u on the level of savin s and the ca italoutput ratio


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Structural-chan e theor deals with olicies focused

on changing the economic structures of developingcountries from being composed primarily of

modern, more urbanized, and more industrially

diverse manufacturing and service economy. There are two major forms of structural-change

theory:

. - . Hollis Chenerys patterns of development

.


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The two-sector sur lus model which views a rarian

societies as consisting of large amounts of surpluslabor which can be utilized to spur the development,

The patterns of developmentapproach, which is the

empirical analysis of the sequential process throughwhich the economic, industrial and institutionalstructure of an underdeveloped economy is

replace traditional agriculture as the engine ofeconomic growth


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Criticisms of the Structural-

change theory These models have faced criticism for their em hasis

on urban development at the expense of ruraldevelopment which can lead to a substantial rise in.

The two-sector surplus model, has been further

criticized for its underlying assumption thatpredominantly agrarian societies suffer from asurplus of labor. Actual empirical studies have shown

drawing such labor to urban areas can result in acollapse of the agricultural sector.

The patterns of development approach has been

criticized for lacking a theoretical framework


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prominence in the 1970s as a reaction to thefailure of earlier theories to lead towidespread successes in international

development. Unlike earlier theories, international

dependence theories have their origins in

development as being primarily external in, .


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being economically and politically dependenton more powerful, developed countries whichhave an interest in maintaining their dominant

position. There are three different, major formulations

of international dependence theory;

neoco on a epen ence t eory, the false-paradigm model and

e ua s c- epen ence mo e .


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away from International DependenceTheories.

Neoclassical theories argue that governments

should not intervene in the economy. these theories are claiming that an

unobstructed free market is the best means of


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excessive government regulation are seen asbeing able to naturally ensure that theallocation of resources occurs with the

greatest efficiency possible and the economicgrow s ra se an s a ze .

Three alternative approaches:

ree mar et approac , public-choice theory, and

mar e - r en y approac


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- -

theory contend that the market should betotally free, meaning that any intervention bythe government is necessarily bad.

The market-friendly approach advocatesfree markets but recognizes that there aremany imperfections in the markets of many

some government intervention is an effective

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