Course: Global Problems and Economic Development Theories of development economics 1.

1. Course: Global Problems and Economic DevelopmentTheories of development economics 1. 21 March 2006 Judit Ricz judit.ricz@econ.unideb.hu

2. Todaro-Smith (2006): 3rd Chapter (pp. 102-125) or http://www.aw-bc.com/info/todaro_smith /Chapter4.pdf

3. Classic theories Four approaches: • Linear-stages-of-growth model • Theories of structural change • International-dependence revolution • Neoclassical counterrevolution Today: eclectic approach

4. Introduction • Evolution of developmental thoughts • Economic growth vs. development • New paradigm of development

5. 1. Linear-stages-of-growth model • after the 2nd WW • economists of industrialized countries • no conceptual apparatus • historian experiences • central role of capital accumulation  capital fundamentalism

6. Kuznets: modern economic growth • inverted U hypothesis (1954) • six characteristics of modern economic growth

7. Kuznets, Simon - UK (Nobel Prize in 1971) "for his empirically founded interpretation of economic growth which has led to new and deepened insight into the economic and social structure and process of development"

8. Rostow’s stages of growth • american historian • transition of development = stages/steps • the traditional society, • the pre-conditions for take-off into self-sustaining growth, • the take-off, • the drive to maturity, • the age of high mass consumption.

9. Rostow, Walt Whitman The Process of Economic Growth (1952)

10. Harrod-Domar Growth Model • savings = investments • replacement of worn out capital (depreciation) • new investments • Y/Y = s/k • economic logic behind • critics

11. Components of economic growth • capital accumulation • growth in population (labor force) • technological progress

12. 2. Theories of structural change • transformation process Lewis: „two-sector surplus labor” model Chenery: „patterns of development”

13. Lewis: „two-sector surplus labor” model • two sectors: • traditional, rural sector • modern, urban, industrial sector • output expansion • rural labor supply curve perfectly elastic • self-sustaining growth • critics

15. Sir Arthur Lewis - UK with Theodore W. Schultz (Nobel Prize in 1979) "for their pioneering research into economic development research with particular consideration of the problems of developing countries"

16. Chenery: „patterns of development” • change of economic, industrial and institutional structure • new industries as engines of economic growth • contrast to Lewis-model • all economic functions • domestic and international constraints • empirical studies

17. „let the facts speak for themselves” • „development is an identifiable process of growth and change whose main features are similar in all countries” • optimistic • “correct” mix of economic policies

18. 3. International-dependence revolution • pessimistic • economists of developing countries • international dependence, dominance • neocolonial dependence model, • false-paradigm model, • dualistic-development thesis

19. The neocolonial dependence model • marxist influence • „unequal international capitalist system” • rich – poor, center – periphery • policies of capitalist countries / organizations • external forces • Dos Santos

20. The false-paradigm model • less radical • external forces to blame, but unintended • assumptions of mainstream, neoclassical models vs. reality in developing countries

21. The dualistic-development thesis • concept of dualism • different sets of conditions • chronic coexisting divergence • differences tend to increase • no „trickle down”

22. Summary of dependence models • emphasis on international power imbalances • need for economic, political, and institutional reforms (domestic – worldwide) • critics • political implications

23. 4. Neoclassical counterrevolution • Market Fundamentalism • Free Market Approach, • Public Choice Theory, • Market-Friendly Approach