Development Models

and Theories
(Linear Stages Model and
Structural Change Model)
 Hello!
I am Carlos L. Armones
 I. LINEAR
STAGES OF
DEVELOPMENT
 “
Quotations are commonly printed as a
means of inspiration and to invoke
philosophical thoughts from the reader.
 Rostow - Stages of Economic Growth
• The work of American Walt W.
Rostow (1960)
• Rostow is an economic
historian
• Countries can be placed in one
of five categories in terms of
its stage of growth:
A child in Sierra Leone making breakfast. Which stage
would a country like Sierra Leone fit in?
Copyright: Dave Dyett, http://www.sxc.hu/
 Rostow - Stages of Economic Growth
1. Traditional Society
• Characterised by
– subsistence economy
– output not traded or
recorded
– existence of barter
– high levels of
agriculture and labour
intensive agriculture
Village in Lesotho. 86% of the resident workforce in Lesotho is engaged
in subsistence agriculture.
Copyright: Tracy Wade, http://www.sxc.hu/
 Rostow - Stages of Economic Growth
2. Pre-conditions:
– Development of mining
industries
– Increase in capital use in
agriculture
– Necessity of external
funding
– Some growth in savings
The use of some capital equipment can help increase productivity
and investment
and generate small surpluses which can be traded.
Copyright: Tim & Annette, http://www.sxc.hu
 Rostow - Stages of Economic Growth

3. Take off:
•Increasing
industrialisation
•Further growth in
savings and investment
•Some regional growth
•Number employed in
agriculture declines
At this stage, industrial growth may be linked to primary
industries. The level of technology required will be low.
Copyright: Ramon Venne, http://www.sxc.hu
Development can stall at stage 3
for lack of savings – 15-20% of
GDP required. If the domestic
Savings rate is 5%, then
international aid/loan must total
10-15% in order to plug the
‘savings gap’. Resultant
investment means a move to
stage 4 Drive to Maturity and
self-generating economic
 Rostow - Stages of Economic Growth

• 4. Drive to Maturity:
• Growth becomes self-
sustaining – wealth
generation enables further
investment in value adding
industry and development
• Industry more diversified
• Increase in levels of
technology utilised
As the economy matures, technology plays an increasing role in
developing high value added products.
Copyright: Joao de Freitas, http://www.sxc.hu
 On comparing the dates of take-off and
drive to maturity, these countries reached
the stage of maturity in approximately 60
years.
▫ The structural changes in the society during this stage are
in three ways:
1. Work force composition in agriculture shifts from 75%
of the working population to 20%. The workers acquire
greater skill and their wages increase in real terms.
2. The character of leadership changes significantly in the
industries and a high degree of professionalism is
introduced.
3. Environmental and health cost of
industrialization is recognized and policy
changes are thus made.
·During this stage a country has to decide
whether the industrial power and technology it
has generated is to be used for the welfare of its
people or to gain supremacy over others, or the
world in toto.
 Rostow - Stages of Economic Growth

• 5. High mass consumption

• High output levels
• Mass consumption of
consumer durables
• High proportion of
employment in service
sector

Service industry dominates the economy – banking, insurance, finance,

marketing, entertainment, leisure and so on.
Copyright: Elliott Tompkins, http://www.sxc.hu
It is possible to put any country of the world into one of the
stages. For example, most sub-Saharan countries would be
in stage 2, while developing economies like Vietnam and
Thailand are in stage 3. The UK would have also been
found here back in the Industrial Revolution years of the
mid-1800s. The emerging economies of places like China
and Argentina are in stage 4, while the USA, UK, and most
western European countries are in stage 5.
Rostow's model is now a little old and
outdated, as it could not have foreseen
many technological developments that
have taken place since its creation. It also
did not allow for the influence of
international aid in some parts of the
world.
 Criticisms:
▫ Too simplistic
▫ Necessity of a financial infrastructure to channel any savings that are made into
investment
▫ Will such investment yield growth? Not necessarily
▫ Need for other infrastructure – human resources (education), roads, rail,
communications networks
▫ Efficiency of use of investment – in palaces or productive activities?
▫ Rostow argued economies would learn from one another and reduce the time taken to
develop – has this happened?
 Structural Changes Models

Structural change model 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.
 Structural Change Model
• Structural change models focus on the different
productivity levels of economies
• Process of structural change determines the rate of
development
• Can such structural changes be accommodated?
 Structural Change Model
• Less developed nations – tend to be dominated by primary
industries – low value added, difficult to generate wealth
and thus sources of investment
• Developed nations – diverse economies, high value added,
high levels of investment
• Structural change can be encouraged by incentives
 Lewis- 2 Sector model
Sir William Arthur Lewis (23 January 1915 –
15 June 1991) was an economist well known
for his contributions in the field of economic
development. In 1979 he was awarded the
Nobel Memorial Prize in Economic
Sciences. He had dual Saint Lucian and
British citizenships.
 Lewis- 2 Sector model
• Agriculture - low value added
• Industrial sector - higher productivity and wealth generation
• Incentives to encourage workers to migrate from rural economy
to urban
• Rural workers have very low if not zero marginal productivity
• Wage premiums in urban industry 30% above rural wages
would encourage migration from rural to urban whilst still
allowing profits to be made
• Re-investment of profits would lead to a self perpetuating
development
 CRITICISMS:
1. Assumes labor transfer & employment creation proportional to
capital accumulation. But what if profits invested in labor-saving
equipment?
2. Contemporary research show little surplus labor in rural areas
(except in some countries like China)
3. Urban surplus labor
4. Wages increase amid unemployment
Structural-change approaches to development economics
have faced criticism for their emphasis on urban
development at the expense of rural development which
can lead to a substantial rise in inequality between
internal regions of a country.
The two-sector surplus model, which was developed in the 1950s,
has been further criticized for its underlying assumption that
predominantly agrarian societies suffer from a surplus of labor.
Actual empirical studies have shown that such labor surpluses are
only seasonal and drawing such labor to urban areas can result in a
collapse of the agricultural sector. The patterns of development
approach has been criticized for lacking a theoretical framework.
 Lack of a proper theory in
explaining the pattern of
development leads to the
problem that we might not
be sure about the causation
and the effect.
 References
https://www.google.com/search?q=walt+whitman+rostow+quotes&source
https://en.wikipedia.org/wiki/Rostow%27s_stages_of_growth
www.umsl.edu.../Geography%20Powerpoint%20Slides/...models%20of
%20develop...
https://en.wikipedia.org/wiki/Rostow%27s_stages_of_growth
https://en.wikipedia.org/wiki/W._Arthur_Lewis
Thanks!