ECON 25
CHAPTER 3: CLASSIC THEORIES OF ECONOMIC GROWTH AND
DEVELOPMENT
that a statement must be true (or a result must hold)
given other assumptions
2.
Development
is a multidimensional process involving the reorganization
and reorientation of entire economic and social systemcultural, institutional, and political.
FOUR THEORIES OF ECONOMIC DEVELOPMENT
1. Linear-Stages-of-Growth Models
A. Rostow’s Stages of Growth
A theory of economic development, associated with the
American economic historian Walt. Rostow, according to
which a country passes through sequential stages in
achieving development
B.
-
Harrod-Domar Growth Model (AK Model)
A functional economic relationship in which the growth rate
of gross domestic product (g) depends directly on the
national net savings rate (s) and inversely on the national
capital-output ratio (c)
 Capital-Output Ratio – shows the units of capital
required to produce a unit of output over period of time
 The problem: capital depreciation due to being wornout and impaired of capital goods (buildings, equipment
and materials).
 Investment, labor force growth and technological
progress
Criticisms of Linear-Stages-of-Growth Models
1. It is a necessary condition but not the sufficient condition.
 Necessary condition - A condition that must be
present, although it need not be in itself sufficient, for
an event to occur. For example, capital formation may
be a necessary condition for sustained economic
growth (before growth in output can occur, there must
be tools to produce it). But for this growth to continue,
social, institutional, and attitudinal changes may have
to occur.
 Sufficient Condition – a condition that wen present
causes or guarantees that an event will or can occur, in
economic models, a condition that logically requires
3.
4.

Changing international economic order (i.e. (dis)integration
of markets)
Attitudinal conditions (i.e. educated workforce, efficient
government, & motivations to succeed)
Developed transport system