Question

What factors contribute to development/growth according to the linear stages of growth models, Lewis model, dependency theory and neo-classical theories? How relevant have these theories been for the development paths of the developing countries? I need a detail answer

Answer 1

LINEAR STAGES OF GROWTH MODELS

When the interest in the poor nations of the world began to materialize following the 2nd World war, economists in the industrialized countries were caught off guard. They had no conceptual appratus to analyze the process of economic growth in the agrarian societies characterized by the absence of medern economic structures.

Rostow's Stages of Growth

After the cold war politics of 1950s and 1960s the resulting competition for the newly independent nations, came the stages of growth model of development. According to Rostow doctrine, the transition from underdevelopment to development can be described in terms of a series of steps or stages through which all countries must proceed. It was said that the advanced countries had already passed the "take-off" stage while underdeveloped countries were still in the "preconditions stage" . One of the principal strategies of development necessary for the take-off was the mobilization of domestic and foreign savings in order to generate sufficient investment ot accelerate economic growth.

The Harrod-Domar Growth Model

It says that every economy must save a certain proportion of its National income, if only to replace worn-out or impaired capital goods. In order to grow, new investments representing net additions to the capital stocks are necessary. The factors contributing are size of total capital stock, K, the total GNP, Y, the capital-output ratio and the savings ratio.

The mechanisms of development embodied in the theory of stages of growth did not always work. The basic reason they didnt work was not because more savings and investment isn't a necessary condition for accelerated rates of economic growth, but rather because it is not a sifficient condition.

LEWIS MODEL

The model focused on the structural transformation of a primarily subsistence economy. The Lewis-two sector model became the general theory of development process in the labour surplus Third World countries during most of the 1960s and 70s.

In the Lewis model, the underdeveloped economy consists of two sectors: a traditional, overpopulated rural subsistence sector characterized by zero marginal labour productivity - a situation that permits Lewis to classify this as surplus labour in the sense that it can be withdrawn from the agricultural sector withput any loss of output - and a high productivity modern urban industrial sector into which labour from the subsistence sector is gradually transferred. The primary focus of the model is on both the process of labour transfer and the growth of output and employment in modern sector. The speed with which this expansion occurs is determined by the rate of industrial investment and capital accumulation in the modern sector. Such investment are made possible by the excess of modern-sector profits over the wages on assumption that capitalists reinvest all their profits. Finally, the level of wages in the urban industrial sector is assumed to be constant and determined as a given premium over a fixed average subsistence level of wages in the traditional agricultural sector.

The Lewis two-sector development model is simple and roughly reflects the historical experience of economic growth in the West, few of its key assumptions do not fit the institutional and economic realities of most contemporary developing countries. Some assumptions like Lewis model is the notion that surplus labour exists in rural areas while there is full employment in urban areas. But most contemporary research indicates that there is little general surplus labour in rural locations. Another unreal assumption is the notion of a competitive modern-sector labour market that guarantees the continued existence of constant urban real wages upto the point where the supply of rural surplus labour is exhausted.

DEPENDENCY THEORY

The Neocolonial Dependence Model, is an direct outgrowth of Marxist thinking. It attributes the existence of continuance of underdevelopment primarily to the historical evolution of a highly unequal international capitalist system of rich and poor countries relationships. The coexistence of rich and poor nations in the international system dominated by such unequal power relationship between the both renders attempts by poor nations to be self-reliant and independent, difficult and sometimes impossible. The neocolonial view of underdevelopment attributes a large part of the developing world's continuing and worsening poverty to the existence and policies of the industrial capitalist countries of the Northern Hempishere and their extensions in small but powerful elite groups in the less developed countries.

NEO-CLASSICAL THEORY

The neo-classical free market argument is the assertion that liberalization of national markets draws additional domestic and foreign investment and thus increases the rate of capital accumulation. In terms of GNP growth, this is equivalent to raising domestic savings rates, which enhances capital-labour ratios and per capita incomes in the capital-poor developing countries. Neo-classical models of growth are direct outgrowth of Harrod-Domar and Solow models, which both stress the importance of savings. The main factors responsible are the Capital stock, Labour, National Income and Technology, which are added to the growth equation.

The neoclassical counterrevolution of 1980s like the dependence revolution of 1970s faced saw underdevelopments as an externally induced phenomenon, neoclassical revisionists saw the problem as an internally induced LDC phenomenon, caused by too much government intervention and bad economic policies. Such issues divide the rich nad poor nations.