GUESS WHAT?!!!

Theories in
Economic Growth
THEORY OF DEVELOPMENT
STAGES (WALT WHITMAN
ROSTOW)
Traditional Society – people defend upon land as basic
resources for their livelihood
Precondition Stage – Society begin to put up its
infrastructure for better growth
Take-off – productive activity has expanded through
technological change and increased investment.
Drive maturity – rapid technological change, new
management methods, and expansion of international trade.
High Mass Communication – enjoyment of leisure rather
than herd-nose economic struggle.
 LAISSES FAIRE
ADAM SMITH
Invisible hand in the economy
This theory advocated minimal intervention by the
government
It was developed by the French Physiocrats during the
18th century
Critics argue that markets do need a certain degree of
government regulation and involvement
Philosophy of free-market capitalism that opposes
government intervention
LIMITS OF GROWTH THEORY
David Ricardo
 Nations can gain an international trade advantage
when they focus on producing goods that produce the
lowest opportunity costs as compared to other nations.

Conditioned by the availability of the fertile land.

 He believed that a permanent underclass would

always be poor. Because of the rapid growth of
population than food supply.
 GENERAL THEORY
John Maynard Keynes
 The General Theory of Employment, Interest and
Money.

 Keynesian economics, center around the idea that

governments should play an active role in their
countries’ economies, instead of just letting the free
market reign. .

 He pioneered the use of national economic statistics

(macroeconomics). He estimated how much a
 HARROD-DOMAR THEORY
Roy F. Harrod & Evsey Domar
 states that the rate of economic growth in an economy is
dependent on the level of saving and the capital ratio

 Domar assigns a key role to investment in the process

of growth while Harrod regards to the level of income
as the most important factor in the growth process.

 Total savings and the relationship between capital and

output
 TECHNOLOGICAL CHANGE
Joseph A. Schumpeter
 invention (conceiving a new idea or process),
innovation (arranging the economic requirements for
implementing an invention), and diffusion (whereby
people observing the new discovery adopt or imitate it).

 large companies compete not strictly in price but in

achieving successful innovations.

 innovation, entrepreneurial activities, and market

power.
 TRICKLE DOWN THEORY
 a situation where particular trends are first accepted by
people in the top social class. Those fashion trends
become gradually accepted by those in the lower classes.

 if the rich receive tax cuts, they will pass these benefits
on to the poor by creating jobs.

 the notion that the adoption of a particular fashion will

flow upward from one socioeconomic layer o consumers
to the next.
 KALDOR MODEL
Nicholas Kaldor
 total savings include savings out of wages and savings
out of profit.

 systematic attempt to account for the sharing of the

national income among the owners of the factors of
production – land, labour, and capital.

 new investment are required to change technology.

 THE DEBT TRAP THEORY

 limit to how much a country can borrow from other

countries and the international leading institution.
 LAW OF NATURE
Herbert Spencer
 the act must be a good one. The second principle is that
the act must come about before the consequences. The
third is that the intention must be good. The fourth, it
must be for serious reasons.

 includes the core characteristics (feelings, psychology,

behaviors) shared by all people.

 In our society, it is wrong for one person to kill another

person.
 CULTURAL DIFFUSION

 is the spread cultural trends across locations.

(philosophy, religion, fashion, language, and technology.

 includes the core characteristics (feelings, psychology,

behaviors) shared by all people.

 it is the process by which human behaviors travel,

enabling the survival of the species.
THANK YOU!!!