THE PHASES of

ECONOMIC
DEVELOPMENT
for Organization and Management
Senior High School (ABM)
Quarter 1 / Week 5
LEARNING COMPETENCY: Differentiating the
phases of economic development and its impact to
business environment (ABM_AOMII-Ic-d-8)

I. What Happened
Walt Whitman Rostow, also known as W.W. Rostow,
was an economist in the Lyndon B. Johnson administration
from 1966-1969. He also published articles and developed
models on economic development. One of his most prominent
ideas was the five stages of economic development. In this
model, he suggests that societies go through five stages of
economic development as they develop and grow.
II. What You Need to Know

DISCUSSION
Although material wealth accumulation is among the concerns
of genuine economic development, its greater concern is the total
improvement of the quality of people’s lives. This is in relation to
sustainable economic development, which ensures that the present
needs of a particular generation are fully met without endangering
the ability of future generations to fully meet their own needs.
Economic development and its causes have been the
focus of study by economists for centuries largely
because it has the potential to reduce or remove poverty,
improve the standard of living, help achieve social
goals such as education and healthcare and substantially
improve the quality of life of the people.
 Economic development

●The action taken by the policy makers to raise the standard of living
of general public by developing human capital, critical infrastructure,
health, security, literacy/education, regional competitiveness, social
institution, and any other initiatives for the welfare of public as a
whole.

● A total process which includes not only economic growth or the

increase in the given amount of goods and services produced by the
country’s economy, but also considers the social, political, cultural, and
spiritual aspects of the country’s growth.
Economic growth

● It is the raise in the value of goods and services produced in

a country over time normally in a year after adjusting the inflation.
It actually measures the increase in real gross domestic product
(GDP). The most important formula to measure the growth is GDP
per capita that is also known as per capita income. It is usually
measure by GDP (gross domestic product), GNP (gross national
product), and NNP (net national product) with the help of
production, or income, or expenditure over time normally a period
of one year. In economic, economic growth means, capability or
potential of government to achieve production at full level of
employment. Two countries performance is always measured on the
basis of economic growth comparison of both countries.
● Increase in the given amount of goods and services produced
by the country’s earning or a change in the amount of goods and
services produced over a given period.

Economic development phases are the distinct stages involved

in the total process of economic development in a particular
country.
Key Differences between Economic Growth and Economic
Development

● Economic growth means change in value of goods and services over

time normally for a period of one year. Economic development means
changes in the socio-economic structure of country that relates to growth
to human development indexes (HDIs), decrease in equality, changes in
standard of living of public.

● Economic growth is measured through gross domestic product (GDP),

GDP per capita, gross national product (GNP), and net national product
(NNP). Economic development is measured through human development
index (HDI), gender-related index (GDI), human poverty index (HPS),
literacy rate, infant mortality, socio-economic development .
● Economic growth brings only quantitative changes in the
economy while economy development brings both qualitative
and quantitative changes in the economy.

● To measure the performance of two countries economic

growth is used as a parameter while economic development is
only used to measure the progress of developing countries or
nations.

● Economic growth deals with the change in the country’s

economy output while economic development deals with the
structural changes in the economy.
Phases/Stages of Economic Development
1. Traditional Society
● The first stage of Rostow's model and the one in which societies
begin. This stage was prevalent prior to the 1700s, when most
societies operated in a relatively stable state and productivity didn't
rise or fall dramatically. Trade existed, such as the spice route
between Asia and Europe, but it was timely, costly, and more of a
luxury than a necessity. Technology was very limited. Humans had
access to little more than handmade tools, transportation, and the
printing press. That meant that producing goods was very human
capital intensive, which created large gaps in income inequality.
These societies also relied heavily on agricultural labor because a
tremendous amount of labor was required to grow enough food to
sustain the societies.
● This stage is characterized by a subsistent, agricultural-based
economy with intensive labor and low levels of trading, and a
population that does not have a scientific perspective on the world
and technology.
2. Preconditions for Take-Off

● A period of transition between the traditional society and a

society that takes off, and for a certain time that society is
establishing the preconditions for take-off. It is mostly marked
by an increase in productivity, such as was found in Europe
during the 1700s and 1800s. A number of factors came together
to make productivity increase; for example, population hit a
critical mass that made agriculture take up such a high
percentage of labor, which provided opportunities for the
establishment of educational institutions, banks, and a market
for luxury goods.
● Here, a society begins to develop manufacturing and a more
national/international—as opposed to regional—outlook.

● This generally described as “prerequisites for rapid economic

growth.” It is the intermediary step between a traditional,
agrarian society and industrial explosion. It primarily involves
external investment and a much greater exploitation of natural
resources.
3. Take-Off

● When the preconditions for take-off are met, a society can take
off. Educated individuals start inventing new processes and tools,
and access to capital through financial markets and banks make it
possible to produce goods and services on a larger scale. This
requires a different type of skill set from human laborers, so the
economy shifts from agriculture to production. This increases
wages for everyone, taking the economic structure from a structure
of kings and servants to a wealthy class, middle class, and lower
class. A lower class still exists at this stage, either because of social
norms that discriminate against people or simply because the
number of middle class jobs are fewer than the total number of
people.
● Rostow describes this stage as a short period of intensive
growth, in which industrialization begins to occur, and
workers and institutions become concentrated around a new
industry. This is where the societies move toward full
industrialization in certain specific ways, such as technological
innovations, urbanization, production of secondary goods such
as textiles, and intense growth in specific sectors.
4. Drive to Maturity

● The next of Rostow's five stages has a general length of time

associated with it, the drive to maturity. It is about a 60-year
period between the take-off and the final stage, the age of mass
consumption. During this short period, an economy (the
collective of all consumers and producers) is able to reinvest 10-
20% of what it creates into more production. Processes are
improved, quality of life is improved, and technology and new
ideas continue to become more central to society, while the cost
of producing the needs for survival (like food and shelter)
becomes a smaller part of the economy.
More importantly, the middle class grows at the quickest rate of any
economic class. For the modern-day U.S., this stage really took place
from after WWI, from about 1915, until around 1980, when the
technology era began.

● This stage takes place over a long period of time, as standards of

living rise, the use of technology increases, and the national economy
grows and diversifies.
5. Age of Mass Consumption

● After the drive to maturity, an economy reaches maturity and

begins the final stage, the age of mass consumption. The quantity
and quality of products and services increase. A society or
economy in this stage is able to export production, bringing in
money from other countries that help the economy grow larger
beyond actual consumption.
● Rostow believed that Western countries, most notably the United
States, occupied this last "developed" stage. Here, a country's
economy flourishes in a capitalist system, characterized by mass
production and consumerism.

● 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.
World leaders gathered for the Millennium Summit, and thus adopted
the United Nations Millennium Declaration. They had committed their
nations to a global partnership in the pursuit of Millennium
Development Goals (MDG). Below are the goals of MDG to be
fulfilled:

1. Eradicate extreme hunger and poverty

2. Achieve universal primary education
3. Promote gender equality and empower women
4. Reduce child mortality
5. Improve maternal health
6. Combat HIV/AIDS, Malaria, and other diseases
7. Ensure environment sustainability
8. Develop a global partnership for development
 In the Philippines, the National Economic and Development
Authority (NEDA) has laid out the Philippine Development Plan
(PDP) 2011-2016, which “adopts a framework of inclusive
growth, which is high growth that is sustained, generates mass
employment, and reduces poverty.” The PDP is focused on
economic and industrial goals of the Philippines but also the
social, environmental, and peace and security aspects
The PDP is focused on the following areas:

1. Pursuit of Inclusive Growth

2. Macroeconomic Policy
3. Competitive Industry and Services Sectors
4. Competitive and Sustainable Agriculture and Fisheries Sector
5. Accelerating Infrastructure Development
6. Resilient and Inclusive Financial Sector
7. Good Governance and the Rule of Law
8. Social Development
9. Peace and Security
10.Conservation, Protection, and Rehabilitation of the
Environment and Natural Resources
The MDGs and the PDP can help guide the management of
businesses in the Philippines setting. In particular, the PDP
must be taken into consideration in order to deem management
as appropriate or country-specific.

The success of the quantified economic development targets of

the country will greatly benefit the people and also the business
environment. In the planned Integration of the 10 Southeast
Asian Nations (ASEAN) Economic Community (AEC) could
help the Philippines achieve its goals of inclusive growth that
creates jobs and reduces poverty. Business sector also can
achieve their goals and objective.