Models of Economic

Growth and Development

• Sectoral Growth Model

• The Philippines’s Model of Economic Growth
and Development

Presented by:
Elisa de Guzman –Arpilleda
SECTORAL GROWTH MODEL

(1) Agricultural vs. Industry Debate

(2) Balanced vs. Unbalanced Growth
1. Agricultural vs. Industry Debate

There is no doubt that without agriculture,

country cannot exist and without industry, country
cannot develop. Agriculture and industry are like
two wheels of a bicycle; one cannot survive
without other. So it’s necessary for a country to
have both- agriculture as well as industry. Like two
faces of a coin, agriculture and industries, both are
very much important.
 What is the difference between our ancestors and
us? Our ancestors were fully dependent on agriculture
and met their needs from it. Those days, they had very
less scope of comfort. This was because of lack of
industries. Although there were few small cottage
industries, but however they cannot be classified as
industries. This is the main difference between our
ancestors and us. Today we can communicate with
anybody, wherever he may be by a push of a little
button. Every type of comfort is present before us. This
is all because of industries. But, one can also not deny
the fact that agriculture is equally important.
 Agriculture is the backbone of industry. But
without industry means tea without milk. For a
complete comfort, industry as well as agriculture
should develop simultaneously. It is not the issue of
Industry vs. Agriculture; it is the issue of Industry
and Agriculture.
2. Balanced and Unbalanced
Growth
One of the earliest debates in development
economics was about whether development would
proceed more effectively with balanced or unbalanced
growth.
The advocates of balanced growth stressed that, as
an economy grew, it needed all sectors to grow to
support each other.
In contrast, unbalanced growth theory, which is
associated with the German political economist Albert
Hirschman, suggests that overall growth is faster when it
is unbalanced.
If growth is unbalanced, resource prices will rise in those
areas where output growth is relatively slow, and this
will act as a signal for investors to allocate funds to
opening up these bottlenecks.
An imbalance is likely to result in greater investment and
growth because it leads to a more efficient allocation of
resources.
THE PHILIPPINES’S MODEL OF
ECONOMIC GROWTH AND
DEVELOPMENT

 The Solow-Swan Model of Economic

Growth
 Endogenous Growth Theory
The Solow-Swan Model of
Economic Growth
 The Solow–Swan model is an exogenous growth
model, an economic model of long-run economic
growth set within the framework of neoclassical
economics.
 It attempts to explain long-run economic growth by

looking at capital accumulation, labor or population

growth, and increases in productivity, commonly
referred to as technological progress.
 Solow extended the Harrod–Domar model by:
•Adding labor as a factor of production;
•And capital-labor ratios are not fixed as they
are in the Harrod–Domar model.
Endogenous Growth Theory
 Endogenous growth theory holds that economic
growth is primarily the result of endogenous and
not external forces.
 It holds that investment in human capital,

innovation, and knowledge are significant

contributors to economic growth.
 The theory also focuses on positive externalities

and spillover effects of a knowledge-based

economy which will lead to economic
development.
 The endogenous growth theory was developed as a
reaction to omissions and deficiencies in the Solow-
Swan neoclassical growth model.
 It is a new theory which explains the long-run growth

rate of an economy on the basis of endogenous

factors as against exogenous factors of the
neoclassical growth theory.
 The endogenous growth models emphasize technical

progress resulting from the rate of investment, the

size of the capital stock, and the stock of human
capital.