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D-3. Theories of DVT & Their Evolution Chap 3-Students
D-3. Theories of DVT & Their Evolution Chap 3-Students
D-3. Theories of DVT & Their Evolution Chap 3-Students
Chapter 3,
Department of Economics, College of
Business and Economics, Addis Ababa
University (AAU), Ethiopia
Assignment II.
• Summarize, Synthesize your understanding of
the chap 2, the philosophical &
Methodological issues and establish their
implications to Development Economics.
• What do you learn from the evolution of the
different theories of Development. This is
quite relevant for your final exam open exam
question.
CHAPTER 5 ©E.Wayne
7
Nafziger Development Economics
Five Modes of Production
1. Five Stages of Development (Five Modes of production),
including:
a. Primitive society, a class less society
b. Slavery mode of production, class society, slave-owners and slaves,
c. Feudalism, class society, landowners & landless(tenants)
d. Capitalism (latter stage imperialism), a class society, bourgeoisie
and proletariat. Inherent irreconcilable conflict that eventually
leads to socialist revolution that serves as a transition period to
communism.
e. Communism, a class less, harmonious, ultimate destination of
human kind, as a class less society, fraternal society, it is the only
sustainable society as there are no inherent class contradictions and
conflicts.
2. Inequality is not Sustainable: Class struggle: Changes in the class
society, takes place through class struggle, based on changes in
ruling & oppressed classes & their relationship to each other.
• Every society lays the seeds of change within itself. The incremental
change, which exist always, give place to radical, revolutionary changes.
Lessons from Marxian Theory
1. Historical & Evolutionary approach to development, if
history matters, it means the unique history of a given
society, which implies the need to tailor development
theories and policies to the particular situation. In fact, it
suggests for developing development theory and policy
for each country on the basis of the history of that country.
2. Recognition of friction (Conflict) in a society, instead of
taking a friction-less, homogenous society, it is a system
that has recognized at least dichotomy within the society;
3. Recognition of Inequality as social, economic and political
problem, if not addressed leading to revolutions, unrest,
instability. Inequality is not sustainable. No society can
atta i n s u sta i n a b l e p e a c e w i t h ge n u i n e f rate r n a l
relationships among its diverse social units and actors.
Critique of Marxism
1. Discussion of socialism not well developed.
2. The class struggle, worker revolt is weakest link. So far
human kind did not experience or witness the
transition from capitalism/imperialism/ to communism.
It only led to what is referred to ‘state capitalism’, which
adopted central command system of managing an
economy. The Soviet block failed with the collapse and
disintegration of the Germany Wall in 1989 and the
Soviet Union in 1990-1991 period.
3. Overlooked possibility that workers’ & capitalists’
interests can and do converge and hence don’t conflict.
v Welfare states have evolved within the capitalist system, that
enhances the wellbeing of the workforce in a society, Instead
we have ver y large middle class, and few business
community, though large income gap, the well-being of the
workforce has improved quite substantially.
10
Critique of Marxism
4. Dichotomized view, progressive against reactionary, bourgeoisie against
proletariat, leaving no room for accommodation, peaceful coexistence
among heterogeneous societies, leaving such political mindset for
irresponsible politicians.
5. The state capitalism, instead of empowering the oppressed, it rather
suppressed individual freedom which caused to stifle individual
initiatives, creativity and innovativeness, while the Capitalist system
despite its major limitations proved better in encouraging, supporting,
individual freedom, initiative taking, business new start-ups, creativity
and innovativeness, which played an instrumental role in ensuring
sustainability of capitalism against the Marxian historical analysis and
prediction that Imperialism is a dying system and Socialism is a
triumphing system.
6. Stage approach to Development: This is a linear, ladder type of
development path where one mode of production giving place to
another higher mode of production. It does not anticipate nonlinear
development path where by economies may not necessarily pursue
the same rigid development path. China is managing which does not
follow the Marxian evolution of modes of production.
11
Rostow-
The Stages of Economic Growth-
A Non-Communist Manifesto
Rostow’s Stages of Economic Growth, 1960
• Much of the US’s early economic development
program was based on Walt Rostow’s 1960 book;
• It was intended as a direct counter to the Marxist
Stage Theory of Capitalist Development
• The most influential and outspoken, economic
historian, an advocate of the stages-of-growth model
of development.
• Viewed the process of development as a series of
successive stages of economic growth. A country
passes through sequential stages in achieving
development. So all countries are located in one of a
hierarchy of development stages.
1
Y K
c
And,
So,
Then, .125
g TOT
- .04 .01
2.5
But if sG = .175, =.04, c =2.5
Then, .175
gTOT - .04 .03
2.5
7.00%
5.72% 5.89%
6.00%
5.40%
5.21%
4.99%
5.00%
4.49%
4.06% 4.19%
3.86%
4.00%
3.00%
2.00%
1.00%
0.00%
nd
l
na
ta
p.
nd
re
a
ga
in
pa
al
Re
po
la
hi
la
rtu
Ch
M
Ja
ai
,C
Ire
ga
a,
Po
Th
ng
n
re
Si
Ko
Ko
Venezuela, RB
Sierra Leone
Madagascar
Nicaragua
Senegal
CAFRP
Zambia
Ghana
Chad
Niger
Haiti
0.00%
-0.20%
-0.21% -0.24%
-0.40% -0.30%
-0.60%
-0.80% -0.75%-0.71%
-0.79%
-1.00%
-1.00% -1.04%
-1.20% -1.11%
-1.40% -1.26%
-1.60%
-1.61%
-1.80% Tsegabirhan Weldegiorgis Abay, DoE, CBE,
12/17/2022 35
AAU, Ethiopia
Simplified Growth Model
1. it is a simple and abstract representation of a complex
economy
2. Simplifying assumptions include:
v Single good produced with a constant technology.
v No government or international trade.
v All factors of production are fully employed.
v Labor force grows at constant rate
v Neoclassical (Cobb-Douglas) aggregate production function with constant
returns to scale
v Representative agent: representative household & firm
v Households are assumed to save a constant exogenous fraction s ∈ (0,
1) of their disposable income.
v Technology is free: it is publicly available as a non-excludable, non-rival
good. So, A(t) is freely available to all potential firms in the economy and
firms do not have to pay for making use of this technology.
Periphery
“ The synchronised
application of capital to a
wide range of different
industries”
- Nafziger (1990, p. 85)
Paul Rosenstein-Rodan
1902 - 1985 Tsegabirhan Weldegiorgis Abay, DoE, CBE,
12/17/2022 93
AAU, Ethiopia
§ The inducement to invest is limited by the size of the
market
§ In a non-surplus producing agricultural economy
there is no initial demand for manufactured goods
§ Whilst Say’s Law suggests that once workers are
transferred to an individual industry (say shoe
production) they will generate their own demand by
consuming shoes, Rosenstein-Rodan noted that they
will not spend their entire wages on shoes alone.
§G o v e r n m e n t i n t e r v e n t i o n i n t h e f o r m o f a
coordinated investment body alleviates these
problems by: coordinating complementary industries;
viewing externalities as profits; and gathering
sufficient information to correctly calculate risk
§ Once a threshold level of industrialisation has been
achieved, normal private incentives may operate
successfully and investment can be left to the market.
§ Thus, a big push breaks an economy out of a vicious
circle and leads toTsegabirhan
12/17/2022
a virtuous circle
Weldegiorgis Abay,
AAU, Ethiopia
DoE, CBE,of growth
97
Version 2. Balanced Growth: Nurkse
§ Pioneered by Ragnar Nurkse
(1907–1959)
§Nurkse followed up on Rosenstein-
Rodan’s thesis
§He embraced ‘Big Push’ theory, but
argued that coordination could also be
achieved by private agents, i.e. banks.
§ His contribution was to assert the
importance of achieving balance
between different segments & sectors
Ragnar Nurkse of the society & economy
1907 - 1959
Tsegabirhan Weldegiorgis Abay, DoE, CBE,
12/17/2022 98
AAU, Ethiopia
Breaking VCP: A Balanced Economy-Nurkse
1. According to Nurkse, a break through on
demand side can be brought about by dashing
initiatives on the part of entrepreneurs.
2. O n t h e s u p p l y s i d e t h e d i s g u i s e d
unemployment ranging between 20% to 30% of
total agri. labor force can be mobilized for
financing capital formation. And the parents of
such disguised unemployed will go on feeding
them.
3. It means that in Nurkse's model the hidden
food surplus will finance the process of
economic growth.
Tsegabirhan Weldegiorgis Abay, DoE, CBE,
12/17/2022 99
AAU, Ethiopia
Breaking VCP: A Balanced Economy-Nurkse
=
Tsegabirhan Weldegiorgis Abay, DoE, CBE,
12/17/2022 101
AAU, Ethiopia
Tsegabirhan Weldegiorgis Abay, DoE, CBE,
12/17/2022 102
AAU, Ethiopia
Being Critical one, What are the Determinants
of Market Size?
•H i r s c h m a n
challenged the
theory of balanced
growth
• He embraced the
t h e o r y o f
‘unbalanced
Alfred Hirschman growth’
1915 -
Tsegabirhan Weldegiorgis Abay, DoE, CBE,
12/17/2022 111
AAU, Ethiopia
Unbalanced Growth
1. Pioneer is a German political economist, Albert
Hirschman
2. Major shortage is investment by entrepreneurs &
risk takers.
3. S o n e e d fo r d e ve l o p m e nt st rate g y to s p u r
investment decisions.
4. Overall growth is faster when it is unbalanced. So
unbalanced growth as a strategy of development
of LDCs.
5. Development should concentrate on certain
sectors. He argued that there are insufficient
resources available in developing countries to
allow for a ‘big push’
Tsegabirhan Weldegiorgis Abay, DoE, CBE,
12/17/2022 112
AAU, Ethiopia
Unbalanced Growth
1. Creating imbalances in the system is the best strategy
for growth.
a. Premise: the little that is available must be used
efficiently.
b. Owing to the lack of availability of resources in the
LDCs, it is not possible to invest in all, so selective
investment is a must.
c. N e e d t o c o n s i d e r h o w i n v e s t m e n t a f f e c t s
profitability of other sectors. Select areas of
intervention on the basis of linkages of investment
areas to other sectors in the economy.
v Consider both backward to sales of inputs &
forward linkages effects