Economic DevelopmentEconomic Development

Economic developmentEconomic development isis

the the

developmentdevelopment of the of the economic wealtheconomic wealth of a of a country.country.

It is reflected in the It is reflected in the well-beingwell-being of people. of people.

It It also implies also implies

a change in thea change in the

technological technological and and institutional organizationinstitutional organization

of of productionproduction

as well as in the as well as in the distributive patterndistributive pattern of of incomeincome..

Economic GrowthEconomic Growth

and and

EconomicEconomic development development

are two different terms. are two different terms.

Economic GrowthEconomic Growth is an is an increaseincrease in in a a country’s GNPcountry’s GNP. .

It is reflected in the It is reflected in the growthgrowth of the of the country'scountry's outputoutput of of goods goods and and servicesservices..

Economic developmenEconomic development t

implies implies

a change in the a change in the socio-economic structuresocio-economic structure of a country. of a country.

It is reflected in a It is reflected in a declinedecline in in agricultureagriculture and and a continuous increase in a continuous increase in industryindustry, , tradetrade,, bankingbanking, , constructionsconstructions and and servicesservices. .

CHARACTERISTICS OF CHARACTERISTICS OF DEVELOPMENTDEVELOPMENT

IndustrializationIndustrialization.. Technology.Technology. HumanHuman ResourceResource(skills, qualifications…)(skills, qualifications…) NaturalNatural ResourcesResources.. EducationEducation and and LiteracyLiteracy

CHARACTERISTICS OF CHARACTERISTICS OF UNDERDEVELOPMENTUNDERDEVELOPMENT..

PovertyPoverty.. A High Percentage of the Population engaged in A High Percentage of the Population engaged in

AgricultureAgriculture.. The use of old age The use of old age productionproduction processes. processes. UnemploymentUnemployment.. IlleteracyIlleteracy. . A High rate of A High rate of ImportImport A Low rate of A Low rate of ExportExport

..

Rostow’s Stages of Economic Rostow’s Stages of Economic DevelopmentDevelopment

In 1960, the American Economic and In 1960, the American Economic and Historian, WW Rostow suggested that Historian, WW Rostow suggested that

countries passed through five stages of countries passed through five stages of economic development.economic development.

Stage 1 Traditional SocietyStage 1 Traditional Society

OutputOutput is is consumedconsumed rather than rather than tradedtraded. .

TradeTrade is carried out by is carried out by barterbarter. .

AgricultureAgriculture is the most important is the most important industry.industry.

Low Low capitalcapital. .

Traditional methods of Traditional methods of productionproduction..

Stage 2 Transitional Stage Stage 2 Transitional Stage (the preconditions for takeoff)(the preconditions for takeoff)

An Increase in An Increase in specialisationspecialisation. .

An emergence of An emergence of transporttransport infrastructureinfrastructure to facilitate to facilitate tradetrade. .

An increase in An increase in savingssavings, , capitalcapital and and investmentinvestment. .

Stage 3 Take OffStage 3 Take Off

An increase in An increase in IndustrialisationIndustrialisation..

WorkersWorkers switch from the switch from the agriculturalagricultural sector sector to the to the manufacturingmanufacturing one. one.

An increase in An increase in investmentinvestment and and incomes incomes which which generate more generate more savingssavings to to financefinance

further further investmentinvestment..

Stage 4 Drive to MaturityStage 4 Drive to Maturity

A A diversifieddiversified EconomyEconomy. .

TechnologicalTechnological innovationinnovation leading to great leading to great investmentinvestment opportunitiesopportunities. .

ProductionProduction of a wide range of of a wide range of goodsgoods and and servicesservices..

A less reliance on A less reliance on importsimports. .

Stage 5 High Mass ConsumptionStage 5 High Mass Consumption

A high mass A high mass consumptionconsumption..

The The serviceservice sector dominates the sector dominates the economyeconomy..

Limitations of Rostow’s TheoryLimitations of Rostow’s Theory

Many economists argue that Many economists argue that

Rostows's model is too general and limited.Rostows's model is too general and limited.

It does not set down the pre-conditions for It does not set down the pre-conditions for growth growth and the and the stagesstages are not clearly identified. are not clearly identified.

Thus, Thus,

it is not very helpful for the understanding of it is not very helpful for the understanding of Economic Development.Economic Development.

Perhaps its importance is to highlight the need for Perhaps its importance is to highlight the need for investmentinvestment to the to the emergenceemergence of the of the economy economy of of

any country. any country.

Other Theories of Development

Bruno Hilderbrand theory of Bruno Hilderbrand theory of development development

The process of The process of developmentdevelopment starts with the starts with the evolutionevolution of the means of of the means of exchangeexchange

from:from: BARTERBARTER to to MONEYMONEY to to CREDITCREDIT

KARL BUCHER theory on KARL BUCHER theory on ECONOMIC DEVELOPMENTECONOMIC DEVELOPMENT

The The expansionexpansion of the of the economyeconomy starts from: starts from:

HOMEHOME to to

TOWNTOWN to to

NATIONNATION

GENERAL THEORIES OF GENERAL THEORIES OF DEVELOPMENT AND DEVELOPMENT AND

UNDERDEVELOPMENTUNDERDEVELOPMENT

1- The Viscious Circle.

According to this theory the causes of underdevelopment are interconnected so

they form a viscious circle. Low Income leads to Low Saving.Low Saving leads to Low Investment.

Low Investment leads to Low Productivity.

Low Productivity leads to Low Income.

2- Dualistic Economies

This theory states that

People from underdeveloped regions

are not motivated towards work and do not respond to monetary incentives.

This leads to the existence of a system of dual economies.

This means that there are two sectors in the economy.

The first is in the hands of foreigners.

It is effecient and well managed. The second is run by the people of the

country.

It is traditional and ineffecient.

3-The Classical Theory

The founder of this theory was Adam Smith.He claimed that development goes through a

process.Division of Labour increases Productivity.Productivity increases National Income.

The increase in National Income leads to an expansion of the market.

The expansion of the market leads to innovation and growth.

4- Lump-Sum Capital and Vent for Surpluses

This theory suggests that the small size of the market is the major cause of

underdevelopment.

Thus, large sums of capital are needed

to build up the infrastructure to create new markets where

economies can take place

and innovations and competition

are encouraged.