EC 121

Development Economics

Economics Department
Ateneo de Manila University
Development Theories
Stages of Growth Models
(W.W. Rostow, 1958)
Stages of Growth: Rostow
• Walt W. Rostow (American; economic
historian)
• 5 categories/stages of growth:
– Traditional Society/Economy
– Pre-conditions for Take-off
– Take-off
– Drive to maturity
– Age of High Mass Consumption
Stages of Growth: Rostow
• Take-off
– Process of economic growth can be regarded
as centering on a brief time interval (2 to 3
decades) when the economy and society
transform themselves in such ways that
economic growth is, subsequently, more or
less automatic
– Rostow concludes that take-off is defined as
an industrial revolution, tied directly to radical
changes in methods of production, happening
decisively over a relatively short period of time
Stages of Growth: Rostow
• Take-off
– Defined as requiring all three of the following
conditions:
1. A rise in the rate of productive investment
2. Development of one or more substantial
manufacturing sectors with a high rate of growth
3. Existence or quick emergence of a political,
social, and institutional framework which
exploits the impulses to expansion in the
modern sector; considerable capability to
mobilize capital from domestic sources
Stages of Growth: Rostow
• Traditional Society/Economy
– Characterized by subsistence economy
– High levels of agriculture; agriculture-based
economy; labour-intensive economy
– Existence of barter trade
– 2 types of Traditional Economy
• Old-world Economy
• New-world Economy
Stages of Growth: Rostow
• Pre-Conditions for Take-off
– Development of industries
– Increase in the use of capital in agriculture
– Growth in savings and investment
– Importance of external markets/ external
funding
Stages of Growth: Rostow
• Pre-Conditions for Take-off
– “The initial preconditions for take-off were created in
Western Europe out of two characteristics of the post-
medieval world which interacted and reinforced each
other: the gradual evolution of modern science and
the modern scientific attitude; and the lateral
innovation that came with the discovery of new lands
and the rediscovery of old, converging with the
impulse to create new technology at certain strategic
points.”
Stages of Growth: Rostow
• Pre-Conditions for Take-off
• “Technically, the preconditions for sustained
industrialization have generally required radical change in
three non-industrial sectors.
– First, a build-up of social overhead capital, notably in transport. This build-
up was necessary not merely to permit an economical national market to
be created and to allow natural resources to be productively exploited, but
also to permit the national government effectively to rule.
– Second, a technological revolution in agriculture. The processes at work
during the preconditions generally yielded both a general rise in population
and a disproportionate rise in urban populations. Increased productivity-
in agriculture has been generally a necessary condition for
preventing the process of modernization from being throttled.
– Third, an expansion in imports financed by the more efficient production
and marketing of some natural resources plus, where possible, capital
imports.”
Stages of Growth: Rostow
• Take-off
– Increasing industrialization
– Regional growth
– Further growth in savings and investment
– “Proportion of the population in rural pursuits
decline.” (i.e. employment in agriculture
declines)
– “…the take-off consists, in essence, of the
achievement of rapid growth in a limited group
of sectors, where modern industrial
techniques are applied.”
Stages of Growth: Rostow
• Take-off
“…the take-off is defined as requiring all three of the
following related conditions:
a) a rise in the rate of productive investment from (say) 5% or less to
over 10% of national income (or net national product);
b) the development of one or more substantial manufacturing
sectors, with a high rate of growth;
c) the existence or quick emergence of a political, social and
institutional framework which exploits the impulses to expansion
in the modern sector and the potential external economy effects
of the take-off and gives to growth an on-going character.”
Stages of Growth: Rostow
• Drive to Maturity
– Self-sustaining growth (i.e. generation of
surplus/wealth enables further investment in
value-adding industry and development)
– Diversification of the industrial sector
– Increasing levels of technology utilized (i.e.
technology plays an increasing role in
developing high value-added products)
Stages of Growth: Rostow
• Drive to Maturity
– “After take-off there follows, then, what might
be called the drive to maturity. There are a
variety of ways a stage of economic maturity
might be defined; but for these purposes it is
defined as the period when a society has
effectively applied the range of (then)
modern technology to the bulk of its
resources.”
Stages of Growth: Rostow
• Age of High Mass Consumption
– High levels of output/GDP
– Mass consumption of consumer durables
– High proportion of employment in the service
sector (i.e. services-oriented economy; more
employed in banking, insurance, finance,
marketing, entertainment, leisure, tourism,
etc.)
 Stages of Growth: Rostow
• Age of High Mass Consumption
– “There have been, essentially, three directions in which the
mature economy could be turned once the society ceased to
accept the extension of modern technology as a primary, if not
over-riding objective: to offer, by public measures,
• increased security, welfare, and, perhaps, leisure to the working force;
• to provide enlarged private consumption-including single family homes
and durable consumers goods and services-on a mass basis;
• to seek enlarged power for the mature nation on the world scene.
– A good deal of the history of the first half of the twentieth century
can be told in terms of the pattern and succession of choices
made by various mature societies as among these three
alternatives.”
 Stages of Growth: Rostow
• Age of High Mass Consumption
((http://en.wikipedia.org/wiki/Rostovian_take-off_model)
– The age of high mass consumption refers to the period of contemporary
comfort afforded many western nations, wherein consumers
concentrate on durable goods, and hardly remember the subsistence
concerns of previous stages.
– Rostow uses the Buddenbrooks dynamics metaphor to describe this
change in attitude. In Thomas Mann’s novel, Buddenbrooks, a family is
chronicled for three generations. The first generation is interested in
economic development, the second in its position in society. The third,
already having money and prestige, concerns itself with the arts and
music, worrying little about those previous, earthly concerns. So too, in
the age of high mass consumption, a society is able to choose between
concentrating on military and security issues, on equality and welfare
issues, or on developing great luxuries for its upper class. Each country
in this position chooses its own balance between these three goals.
Stages of Growth: Rostow
• 2 Types of Traditional Society/Economy
– Old-world Economy
– New-world Economy
• Importance of identifying whether a
country is old-world or new-world; may
determine the how fast take-off is
achieved…
Stages of Growth: Rostow
• New-World Economy
– Low population density
– Dominantly immigrant
– Abundance in natural resources
– Usually starts out as dominantly agricultural;
dominance of industry comes later
– Immigrants – high rates of savings; general
disposition of accumulation of assets
– Take-off stage – achieved fairly easily due to
high rate of savings
– E.g. Australia, New Zealand, Canada, United
States
Stages of Growth: Rostow
• Old-World Economy
– High population density; generally-settled
population
– Established degree of social class
stratification
• Landed aristocracy
• Middle class (merchants, manufacturers)
• Peasants/ Laborers
– Middle class – highest savings rates
– Landed aristocracy – low savings rates
– E.g. Britain, Germany, France, Spain,
Netherlands
Stages of Growth: Rostow
• Old-World Economy
– Landed aristocracy
• Own large tracts of land; rent-based class
• Originally in control of national/ local governments
• Main source of income is rent; taxation; control and
enforcement of laws/ regulations
• Low savings rate
• Engage in conspicuous consumption
(unproductive consumption; means of publicizing
wealth and power; need for them to spend a large
portion of income)
Stages of Growth: Rostow
• Old-World Economy
– Middle Class
• Merchants, manufacturers
• Main customers are the landed aristocrats
• High savings rate – means that a substantial
portion of income is re-invested; savings becoming
investments; a necessity
• Due to high rates of savings, at some point in
history, was able to challenge the landed
aristocracy in terms of controlling the government
• With more control over the government – able to
put up an educational system (public schools),
better transportation systems
Stages of Growth: Rostow
• Old-World Economy
– Middle Class
• Due to high savings rate; became the new elite
• With their emergence as the new elite; values of
society are re-shaped – value high savings; value
material acquisition; acquisition of material assets
as further investments
• New elite at the helm of the modern industrialized
society
Stages of Growth: Rostow
• Old-World Economy
– Middle Class
• The new elite at the helm of the modern
industrialized society
– What then is the role of the landed aristocracy
in the modern industrialized society?
• Set standards of style/ fashion, proper etiquette/
behaviour, etc…
Stages of Growth: Rostow
• Factors which accelerated the emergence
of the new elite:
1. Discovery of new markets
2. Technological innovation
3. Capital inflow
4. Perceived external adversity
Philippine Context: Globalization
1. Discovery of new markets – Export-led growth;
promotion of key industries
2. Technological innovation – Research and
Development
3. Capital inflow – Foreign direct investments
(FDI)
4. Perceived external adversity – Competition
from other countries
Stages of Growth: Rostow
• Criticisms:
– Too simplistic; too linear
– Will savings and investment always
yield growth?
References
• Rostow, W.W. (1958). The Take-Off Into Self-Sustained
Growth. The Economics of Underdevelopment. Edited by
A.N. Agarwala and S.P. Singh. Oxford: Oxford University
Press.
• Todaro, M. (2011). Economic Development.
• Rostow-Stages of Growth powerpoint (www.bized.co.uk)
• http://en.wikipedia.org/wiki/Rostovian_take-off_model
 THE END
THANK YOU.

ATENEO ECONOMICS DEPARTMENT