Rostow's Model of

1. The Stages of Economic Development Rostow's Model of

2. Test / Exam Question: Summarize Rostow’s economic development model AND explain what you think are the problems or limitations with it. ALERT!

3. The ECONOMY: The means by which a society applies its (limited) resources to satisfy its (unlimited) needs and wants • The system of production and distribution and consumption • The combined business and work done by a community. The human processes by which Nature’s resources are converted into goods and services. • A country's industry, trade and finance.

4. We love to divide nations into the "developed" and "developing," "first world" and "third world," or "core" and "periphery." • All of these labels are based off of judging a country's development, but this raises the question: • What exactly does it mean to be "developed?” • Why have some countries developed while others have not?

5. Economic developmentoccurs with the reduction and elimination of poverty, inequality and unemployment within a growing economy. • Theories of economic growth try to explain how and why the economy expands. • The Rostow Linear Stages Model:A linear theory of development. It argues that to achieve modernity all countries pass through the same stages of development. • Economies divided into primary, secondary, and tertiary sectors. The history of developed countries suggests a common pattern of structural change. What is Economic Development?

6. In 1960, the American Economic Historian, Walt Whitman Rostow suggested that countries passed through five stages of economic development. 1916–2003

7. The economy is dominated by subsistence activity where output is consumed by producers rather than traded. • Any trade is carried out by barter where goods are exchanged directly for other goods. • Agriculture is the most important industry and production is labour intensive using only limited quantities of capital. Stage 1 Traditional Society

8. Increased specialisation generates surpluses for trading. • There is an emergence of a transportinfrastructure to support trade. • As incomes, savings and investment grow entrepreneurs emerge. • External trade also occurs concentrating on primary products. Stage 2 Transitional Stage (the preconditions for takeoff)

9. Industrialisationincreases, with workers switching from the agricultural sector to the manufacturing sector. • Growth is concentrated in a few regions of the country and in one or two manufacturing industries. • The level of investment reaches over 10% of GNP. Stage 3: Take Off

10. The economic transitions are accompanied by the evolution of new political, economic and social institutions that support the industrialisation. • Ex: Bank of Canada - 1935 • The growth is self-sustaining as investment leads to increasing incomes in turn generating more savings to finance further investment. It’s the old upward economic spiral – Canada in the 1920s.

11. Stage 4 Drive to Maturity • The economy is diversifying into new areas. • Technological innovation is providing a diverse range of investment opportunities. • The economy is producing a wide range of goods and services and there is less reliance on imports.

12. Stage 5 High Mass Consumption • The economy is geared towards mass consumption. • The service sector becomes increasingly dominant. • Increasing emphasis on “knowledge-based” industries • Increased awareness of environmental issues

13. Rostow’s Model -1 http://www2.hmc.edu/~olson/7

14. According to Rostow development requires substantial investment in capital: • 1. Financial assets or the financial value of assets, such as cash.2. The factories, machinery and equipment owned by a business and used in production.In general, it refers to financial resources available for use. Companies and societies with more capital are better off than those with less capita • For economies to grow the right conditions for such investment would have to be created. Such conditions may include the stable provision of financial services – savings, credit, a stable internationally traded currency.

15. Major Criticisms

16. Many development economists argue that Rostow's model was developed with Western cultures in mind and not applicable to countries in the periphery today. • Rostow disregards one of the most fundamental geographical principals: site and situation. • Rostowassumes that all countries have an equal chance to develop, without regard to population size, availability and type of natural resources, or location. • Singapore, e.g., has one of the world's busiest trading ports, but this would not be possible without its advantageous geography as an island nation between Indonesia and Malaysia Limitations

17. Problem with Models In reality, policy makers are unable to clearly identify stages as they merge together. As a predictive model it is not very helpful. * future is always unknowable… too many variables * based on conjecture Also, models always generalize ~ Conjecture: an opinion or conclusion formed on the basis of incomplete information

18. There may be priorities other than “growth”, the simple increase in per capita income over and above the rate of population growth. • Different societies bound to have different cultural goals, different values • Conceive of progress differently, conceive of the ideal end to society differently • Assumes that all countries have a desire to develop in the same way, with the end goal of high mass consumption, disregarding the diversity of priorities that each society holds and different measures of development.

19. In spite of the many critiques to Rostow's model, it is still one of the most widely cited development theories

20. Country GNI % Agric. % Manufac. A 600 91 3 B 750 70 14 C 10600 18 27 D 8000 13 34 E 950 57 10 F 30200 3 19 G 3500 29 16 Despite its significant weaknesses, Let’s Apply!!! What Stage are the Following Countries in?