3.

1 Classic Theories of Economic Development: Four Approaches

Four major approaches that emerged post-World War II.

Linear Stages of Growth Model. It is a theory where development is seen as a series

of successive stages requiring the right mix of saving, investment, and foreign aid.

Moving to the 1970s, we encounter the shift towards Theories of Structural Change and
the International-dependence Revolution.
Theories of Structural Change utilizes modern economic theory and statistical analysis
to depict the internal process of change in developing countries.
The International-dependence Revolution takes a more radical and political stance,
viewing underdevelopment through power relationships, institutional rigidities, and dual
economies.

During the 1980s and 1990s, a neoclassical (or sometimes called neoliberal)
counterrevolution emphasized the role of free markets, open economies, and
privatization, attributing development failures to excessive government intervention.

3.2 Development as Growth and the Linear-Stages Theories

This approach, emphasizing the central role of accelerated capital accumulation, is labeled as

"capital fundamentalism." It became a prevailing perspective embraced by scholars,

politicians, and administrators in wealthy nations. This suggests that this perspective was so

compelling that it was rarely questioned, with people in developed countries often perceiving the

developing world through the lens of statistics or limited anthropological insights. This term

implies a strong reliance on the belief in the transformative power of capital for economic

development.

Rostow’s Stages of Growth

- most influential and outspoken advocate of stages of growth model of development
was Walt. W. Rostow, an American Economic Historian.
 According to Rostow, the transition from underdevelopment to development can
be described in terms of a series of steps or stages through which all countries must
proceed. (maraming pinagdadaanan to achieve the development they want)

Harrod-Domar Growth Model

- The Harrod-Domar model is a simple way to understand how investment can lead to
economic growth. To put it simply, the idea is that a country could increase employment
and revenue levels by investing more money or capital in its economy, which eventually
results in growth in the economy of the country as a whole.

The Harrod-Domar Growth model is like a blueprint for how countries can grow
their economies. The model talks about the relationship between how much a country
saves, how much it invests, and how fast its economy grows. It points out that if a
country saves more, its economy will grow faster. Also, it says that the more efficiently a
country uses its money for investments (capital-output ratio, a ratio that shows the units
of capital required to produce a unit of output over a given period of time.), the better the
economic growth. The model also considers the roles of a growing workforce and
technological progress in making a country develop.

Now, in the stages-of-growth theories, the key to making an economy grow is to

save more of the money it makes instead of spending it all. If a country saves more, its
economy can grow faster. For instance, if a country saves 6% of the money it makes and
invests it in a smart way (with a capital-output ratio of 3), it can grow at a rate of 2% per
year. But if it saves more, say 15%, its economy can grow at a faster rate, like 5% per
year.)

To make it simpler, the idea is that if a country wants to get richer, it should save
more money, invest it wisely, and make sure its workforce is growing and technology is
improving. This model’s insights into the relationships between savings, investment, and
economic growth have guided different nations in crafting strategies to foster
sustainable development.
3.3 Structural-Change Models
Structural-change theory focuses on the mechanism by which underdeveloped economies
transform their domestic economic structures from a heavy emphasis on traditional subsistence
agriculture to a more modern, more urbanized, and more industrially diverse manufacturing and
service economy.

The Lewis Theory

One of the best-known early theoretical models of development that focused on the
structural transformation of a primarily subsistence economy was that formulated by W.
Arthur Lewis.

One well-known representative example of the structural-change approach is the

"two-sector surplus labor" theoretical model by W. Arthur Lewis which focuses on the transfer
of surplus labor from traditional agriculture to modern industrial sectors, leading to increased
output and employment. Surplus labor exists in rural areas with limited employment
opportunities, while the urban modern sector experiences full employment. The model assumes
that capitalist profits reinvested increase the modern sector's capital stock, leading to higher
output and employment levels until all surplus rural labor is absorbed into the modern sector.

Structural Change and Patterns of Development

The patterns of development analysis focuses on the sequential process through

which the economic, industrial, and institutional structure of an underdeveloped economy
transforms overtime. This transformation is essential to allow new industries to replace
traditional agriculture as the primary driver of economic growth. In contrast to the Lewis model
the patterns of development analysts argue that increased savings and investment alone are
not sufficient conditions for economic growth. Alongside the accumulation of capital, both
physical and human, a series of interrelated changes in the economic structure are necessary
for the transition from a traditional economic system to a modern one.

Empirical structural change analysts highlight both domestic and international constraints
on development. Domestic constraints involve factors like a country’s resource endowment,
physical and population size, and institutional constraints such as government policies. The
differences in the level of development among developing countries are often attributed to a
combination of these domestic and international constraints. The patterns of development
analysis aims to identify characteristic features of the internal process of structural
transformation that a typical developing economy undergoes as it achieves and sustains
modern economic growth and development.

Conclusion
According to the structural change concept, development is a recognizable process of growth
and change with globally shared characteristics. However, the model also understands that
countries can be different in how fast and in what way they develop. This depends on things like
the country's resources, size, government rules, and access to outside money and technology.