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Transcript of ade theory2
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Classic Theories of
Economic Growth and
AEB 4906
Develo ment Economics
http://danielsolis.webs.com/aeb4906.htm
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Theorists of the 1950s and earl 1960s viewed the
process of development as a series of successivestages of economic growth through which all countries
.
It was primarily an economic theory of development in,investment, and foreign aid were all that was necessaryto enable developing nations to proceed along an
econom c grow pa a s or ca y a eenfollowed by the more developed countries.
eve opmen us ecame synonymous w rap ,
aggregate economic growth.
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The postWorld War II literature on economicdevelopment has been dominated by 4 majoran some mes compe ng s ran s o oug :
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(2) theories and patterns of structural change,
e n erna ona - epen ence revo u on, an(4) the neoclassical, free-market counterrevolution.
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The model postulates that economic modernization occursin five basic stages, of varying length:
Preconditions for take-off:
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Drive to maturity:
Age of High mass consumption:
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.
Preconditions for take-off: education, capital mobilization,establishment of banks and currency, entrepreneurial andmanufacturing develops.
Take-off: occurs when sector led growth becomes common and
Drive to maturity: refers to the need for the economy itself todiversify
Age of High mass consumption: refers to the period ofcontemporary comfort afforded many western nations,
,
remember the subsistence concerns of previous stages .
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investment spending in GDP.
That is: the growth rate of GDP depends
u on the level of savin s and the ca italoutput ratio
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Structural-chan e theor deals with olicies focused
on changing the economic structures of developingcountries from being composed primarily of
modern, more urbanized, and more industrially
diverse manufacturing and service economy. There are two major forms of structural-change
theory:
. - . Hollis Chenerys patterns of development
.
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The two-sector sur lus model which views a rarian
societies as consisting of large amounts of surpluslabor which can be utilized to spur the development,
The patterns of developmentapproach, which is the
empirical analysis of the sequential process throughwhich the economic, industrial and institutionalstructure of an underdeveloped economy is
replace traditional agriculture as the engine ofeconomic growth
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Criticisms of the Structural-
change theory These models have faced criticism for their em hasis
on urban development at the expense of ruraldevelopment which can lead to a substantial rise in.
The two-sector surplus model, has been further
criticized for its underlying assumption thatpredominantly agrarian societies suffer from asurplus of labor. Actual empirical studies have shown
drawing such labor to urban areas can result in acollapse of the agricultural sector.
The patterns of development approach has been
criticized for lacking a theoretical framework
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prominence in the 1970s as a reaction to thefailure of earlier theories to lead towidespread successes in international
development. Unlike earlier theories, international
dependence theories have their origins in
development as being primarily external in, .
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being economically and politically dependenton more powerful, developed countries whichhave an interest in maintaining their dominant
position. There are three different, major formulations
of international dependence theory;
neoco on a epen ence t eory, the false-paradigm model and
e ua s c- epen ence mo e .
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away from International DependenceTheories.
Neoclassical theories argue that governments
should not intervene in the economy. these theories are claiming that an
unobstructed free market is the best means of
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excessive government regulation are seen asbeing able to naturally ensure that theallocation of resources occurs with the
greatest efficiency possible and the economicgrow s ra se an s a ze .
Three alternative approaches:
ree mar et approac , public-choice theory, and
mar e - r en y approac
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theory contend that the market should betotally free, meaning that any intervention bythe government is necessarily bad.
The market-friendly approach advocatesfree markets but recognizes that there aremany imperfections in the markets of many
some government intervention is an effective