YOM Post graduate college

Development theories and Policy

Term paper topic on Rostow’s economic growth model and evaluate the
Ethiopian Development on the glance of it.

Group Ass’t_1

Student name Id

Submitted to

Bahirdar
Ethiopia
 Review on Rostow’s economic growth model and evaluate the Ethiopian 2021
Development on the glance of it

Table of Contents
Title Page

1. Introduction Ethiopia economy growth...................................................................................1

2. The Major Industries in Ethiopia.............................................................................................1
2. 1 Agro-based Industry.............................................................................................................2
2.2. Food Processing Industry..................................................................................................3
2.3. Construction Industry........................................................................................................3
2.4. Manufacturing Industry.....................................................................................................3
2.5. Resources and Energy Industry.........................................................................................4
2.6. Tourism Industry...............................................................................................................4
3. Flowchart of Rostow’s Stages of Economic Growth..............................................................5
4. Rostow's model and current Ethiopia economic development................................................6
4.1. Introduction...........................................................................................................................6
4.2. Traditional society................................................................................................................7
4.3. Traditional social norms.......................................................................................................9
4.4. Transitional society (preconditions for take-off)................................................................14
4.5. Take off...............................................................................................................................15
4.6. Drive to maturity.................................................................................................................16
4.7. Age of high mass consumption...........................................................................................17
5. Evaluation of Rostow's Five Stages of Economic Growth Model........................................18
6. Criticism of the model...........................................................................................................19
7. Conclusion.............................................................................................................................20
 1. Introduction Ethiopia economy growth

Ethiopia is strategically located in the Horn of Africa. The country is home to approximately

102 million people. The land-locked country is renowned for its beautiful landscapes with
numerous rivers, jungles, fertile land, and the Great Rift Valley.  

Ethiopia is located near the markets of Middle East, Sudan, South Sudan, Kenya, and Somalia.
Being a landlocked country, Ethiopia uses Djibouti's seaport for its trading activities. Ethiopia
one of the fastest-growing economies in the continent. According to the Economist Intelligence
Unit (EIU), Ethiopia’s GDP growth rate will increase by around 7.8% to 10% by 2023. The
country intends to be a middle-income economy by 2025. Ethiopia’s major industries include
agriculture, construction, manufacturing, resources and energy, tourism, and food processing.

Ethiopia - the second most populous country in Africa - is a one-party state with a planned
economy. For more than a decade before 2016, GDP grew at a rate between 8% and 11%
annually – one of the fastest growing states among the 188 IMF member countries. This growth
was driven by government investment in infrastructure, as well as sustained progress in the
agricultural and service sectors. More than 70% of Ethiopia’s population is still employed in the
agricultural sector, but services have surpassed agriculture as the principal source of GDP.

Ethiopia has the lowest level of income-inequality in Africa and one of the lowest in the world,
with a Gini coefficient comparable to that of the Scandinavian countries. Yet despite progress
toward eliminating extreme poverty, Ethiopia remains one of the poorest countries in the world,
due both to rapid population growth and a low starting base. Changes in rainfall associated with
world-wide weather patterns resulted in the worst drought in 30 years in 2015-16, creating food
insecurity for millions of Ethiopians.

The state is heavily engaged in the economy. Ongoing infrastructure projects include power
production and distribution, roads, rails, airports and industrial parks. Key sectors are state-
owned, including telecommunications, banking and insurance, and power distribution. Under
Ethiopia's constitution, the state owns all land and provides long-term leases to tenants. Title
rights in urban areas, particularly Addis Ababa, are poorly regulated, and subject to corruption.

Ethiopia’s foreign exchange earnings are led by the services sector - primarily the state-run
Ethiopian Airlines - followed by exports of several commodities. While coffee remains the
largest foreign exchange earner, Ethiopia is diversifying exports, and commodities such as gold,
sesame, khat, livestock and horticulture products are becoming increasingly important.
Manufacturing represented less than 8% of total exports in 2016, but manufacturing exports
should increase in future years due to a growing international presence.

Ethiopia’s economic freedom score is 53.6, making its economy the 146th freest in the 2020
Index. Its overall score is unchanged, with an improvement in judicial effectiveness offset by a
decline in fiscal health. Ethiopia is ranked 30th among 47 countries in the Sub-Saharan Africa
region, and its overall score is just below the regional average and well below the world average.

The Ethiopian economy has slowly climbed the ranks of the mostly unfree for the past five years.
At the same time, GDP growth has been surging, partly because of rising business confidence
and increased levels of foreign investment.

Prime Minister Abiy Ahmed’s efforts to privatize state-owned enterprises and establish a
multiparty democracy supported by strong institutions that respect human rights and the rule of
law earned him the Nobel Peace Prize in 2019. These and other reforms, if fully realized, would
improve Index indicators for business freedom and government integrity.

2. The Major Industries in Ethiopia

Ethiopia is strategically located in the Horn of Africa. The country is home to approximately 102
million people. The land-locked country is renowned for its beautiful landscapes with numerous
rivers, jungles, fertile land, and the Great Rift Valley.  
Ethiopia is located near the markets of Middle East, Sudan, South Sudan, Kenya, and Somalia.
Being a landlocked country, Ethiopia uses Djibouti's seaport for its trading activities. Ethiopia
one of the fastest-growing economies in the continent. According to the Economist Intelligence
Unit (EIU), Ethiopia’s GDP growth rate will increase by around 7.8% to 10% by 2023. The
country intends to be a middle-income economy by 2025. Ethiopia’s major industries include
agriculture, construction, manufacturing, resources and energy, tourism, and food processing.

2. 1 Agro-based Industry
The agriculture industry in Ethiopia contributes to over 50% of its GDP. Ethiopia experiences
favorable weather conditions leading to intensive agricultural practices within various diverse
ecological zones. Additionally, the government has embraced both small scale and large-scale
farming leading to high production of livestock products and crop yields. The Ethiopian
agricultural sector covers agro-processed products, beverages, livestock products (eggs, milk,
and meat), leather and textile industries. It also produces apparel, leather goods, and finished
meat products for export and domestic purposes. The cash crop farming sector employs over
60% of Ethiopian working population. Major cash crops grown include spices, coffee, tea, cut
flowers, honey, cotton, wheat, oilseeds, khat, beeswax, vegetables, fruits, and pulses. The high-
value oil seeds cultivated in Ethiopia accounted for $446 million in exports while fruits and
vegetables generated $538 million in the year 2017.

Moreover, Ethiopian farmers also grow coffee which is among the most traded products in the
world. Over 15 million workers get involved in various processes of producing coffee with
annual export revenue amounting to $881 million in 2016/2017. The government plans to
increase its coffee exports revenue to 2 billion dollars by 2019/2020. The subsistence livestock
farming is also part of Ethiopia’s agricultural sector with most activity taking part in the
lowlands. Mutton, beef, and goat meat processing contributed $97 million worth of revenue
while leather and raw hides’ exports revenue amounted to approximately $74 million in 2017.
The agriculture-related industries act as a pillar to other segments of the Ethiopian economy such
as machinery production as well as wholesale and retail businesses.
 2.2. Food Processing Industry
Ethiopia’s food sector generates large amounts of revenue to the government. The popular food
factory products are meat, butter, pasteurized milk, frozen food, fresh fruits, bakery products,
sugar, and cheese. The food processing industry employs about one million people. The food
processing industry is closely related to the Agriculture industry as most of its raw materials are
farm produce.

2.3. Construction Industry

The construction sector in Ethiopia has recorded 11.6% annual growth fuelled by an increase in
infrastructure investments across the regions. The non-residential and residential areas may
further escalate the growth creating more employment, trade, and industry value. Most of the
construction investment falls under the energy and infrastructure sector. This sector contributes
over 9.5% of the country’s GDP. The industry has been able to provide cost-effective homes for
the benefit of low-income households. Moreover, Ethiopia’s construction sector employs over
1.8 million people making it the second-largest operating segment. The government policies help
to identify the various constraints within the industry and facilitates the implementation of laws.
Additionally, policy implementation and rapid growth have attracted foreign businesses. The
policies have paved the way for the involvement of the Chinese and European investors in
industrial growth and infrastructural development. The Ethiopian construction industries have
also embraced partnerships with suppliers, consultants, contractors and engineers among others.

2.4. Manufacturing Industry

The manufacturing industry in Ethiopia plays a significant role in the country’s economy.
Companies engage in the production of processed food, textiles, beverages, tobacco, chemical
products, footwear, soaps, and leather among others. Small enterprises and cottage industries
have embraced the nonfarm employment; creating more working opportunities for Ethiopians.
The industries have also led to the production of consumer-ready products like furniture, woven
fabrics, jewelry, footwear, baskets, utensils, pottery, farming, and construction products. Ethiopia
has the most prominent manufacturing park in Africa the "Hawassa Industrial Park." The park
boasts of numerous co-related manufacturing industries dealing with a textile mill and water
treatment plant. Furthermore, it is the only park in Africa to exclusively manufacture textile and
apparel products. The park employs over 60,000 people who are mostly women. Ethiopia’s
manufacturing sector has helped the economy by employing many people. It has also contributed
to a diversified economy.

2.5. Resources and Energy Industry

Mineral resources mined in Ethiopia like tantalum and gold contribute about 10% of its GDP.
The major gold mining areas are KibreMengist and Yubdo which are located south and west of
Ethiopia respectively. On the other hand, tantalum mining takes place at the Kenticha mines in
Oromia region. The approximate annual production of tantalum is 120 tons. As of 2013, Ethiopia
was one of the world producers of tantalum. The country also has niobium, gemstones, soda ash,
and rock salt (found in Danakil plain). Ethiopia has the potential of mining natural gas and
petroleum. The energy sector impacts both the social and economic lives of the Ethiopian
population. Hydroelectricity comes from dams stationed at Blue Nile River and its tributaries,
Awash River, Shebele River, Omo River, and Gilgel Gibe River. The government plans on
expanding its hydroelectric power stations to various other parts of the country. This expansion
will result in rural electrification.

2.6. Tourism Industry

In 2006, the tourism and services sector contributed to 5.5% of Ethiopia’s GDP with significant
players being private companies. The industry employs thousands of local people. Some of the
main tourist attractions in Ethiopia include national parks such as the Simien Mountains National
Park, historical sites, and antiquities. More specifically, tourists visit the rock-hewn Lalibela
churches, Aksum ruins, Tiya, Negash Mosque, HararJugol and Gondar among other places.
Additionally, the diverse and intriguing Ethiopian culture also acts as a tourist attraction.
Tourism is among the many initiatives that the government is promoting to eradicate poverty and
heighten economic development. The European Council named Ethiopia as the “World’s Best
Tourism Destination” in 2015.

Ethiopia is a landlocked country located in Eastern Africa bordered by Djibouti, Eritrea, Kenya,
Somalia, South Sudan, and Sudan. The geography of Ethiopia consists of high plateaus with the
central mountain range divided by Great Rift Valley. The government system is a federal
republic; the chief of state is the president, and the head of government is the prime minister.
Ethiopia has a traditional economic system in which the allocation of available resources is made
on the basis of primitive methods, and many citizens engage in subsistence agriculture. Ethiopia
is a member of the Common Market for Eastern and Southern Africa (COMESA).

3. Flowchart of Rostow’s Stages of Economic Growth

The flowchart starts at the bottom left with traditional society and moves up and to the right
through the following steps.

1. Traditional society

a. Limited technology; static society

b. Transition triggered by external influence, interests, or markets

2. Preconditions for take-off

a. Commercial exploitation of agriculture and extractive industry

b. Installation of physical infrastructure (roads, railways, etc.) and emergence of

social/political elite

3. Take-Off

a. Development of a manufacturing sector

b. Investment in manufacturing exceeds 10% of national income; development of modern

social, economic, and political institutions

4. Drive to Maturity

a. Development of wider industrial and commercial base

b. Exploitation of comparative advantages in international trade

5. High Mass consumption

 4. Rostow's model and current Ethiopia economic development

4.1. Introduction

Rostow's stages of economic growth model is one of the major historical models of economic
growth. It was published by American economist Walt Whitman Rostow in 1960. The model
postulates that economic growth occurs in five basic stages, of varying length:[1]

1. The traditional society

2. The preconditions for take-off
3. The take-off
4. The drive to maturity
 5. The age of high mass-consumption

Rostow's model is one of the more structuralist models of economic growth, particularly in

comparison with the "backwardness" model developed by Alexander Gerschenkron, although the
two models are not mutually exclusive.

Rostow argued that economic take-off must initially be led by a few individual economic sectors.
This belief echoes David Ricardo's comparative advantage thesis and
criticizes Marxist revolutionaries' push for economic self-reliance in that it pushes for the
"initial" development of only one or two sectors over the development of all sectors equally. This
became one of the important concepts in the theory of modernization in social evolutionism.

4.2. Traditional society 

Labor intensive: - in Ethiopia, there are also small-scale, labor-intensive ventures in weaving,
ironworking, wood processing, tanning and leatherworking. In generally Ethiopia were deploy in
a labour intensive work. The traditional footwear industry in Merkato area of Addis Ababa is a
good example.

Under Haile Selassie I (reigned 1930–74), Ethiopia’s economy enjoyed a modicum of free

enterprise. The production and export of cash crops such as coffee were advanced, and import-
substituting manufactures such as textiles and footwear were established. Especially after World
War II, tourism, banking, insurance, and transport began to contribute more to the national
economy. The communist Derg regime, which ruled from 1974 to 1991, nationalized all means
of production, including land, housing, farms, and industry. Faced with uncertainties on their
land rights, the smallholding subsistence farmers who form the backbone of Ethiopian
agriculture became reluctant to risk producing surplus foods for market. Although land has
remained nationalized, conditions in rural Ethiopia have improved slightly, as the government
has given considerable attention to rural development. Still, the question of land ownership has
remained contentious and has hindered the development of commercial agriculture.
Agriculture, forestry, and fishing

Most ofEthiopiathe reserve land is located in parts of the country that have favourable climatic
conditions for intensive agriculture. In addition, Ethiopia is among the richest countries in Africa
in number of livestock, including cattle. With better management of grazing lands and breeding,
livestock raising has the potential to meet the demands of internal as well as export markets.

Agriculture contributes almost half of Ethiopia’s gross domestic product (GDP). There are three
types of agricultural activity. The first—and by far the most important—is the subsistence
smallholder sector, which produces most of the staple grains such as teff, wheat, barley, and oats
(on the cooler plateaus) and sorghum, corn (maize), and millet (in warmer areas), as well as
pulses such as chickpeas, peas, beans, and lentils. Farm plots are very small, ranging from 3 to 6
acres (1.2 to 2.5 hectares). The second type of agriculture is cash cropping. Products include
coffee, oilseeds, beeswax, sugarcane, and khat (qat; Catha edulis), a mild narcotic. Coffee, which
is native to Ethiopia, is the single most important export. Subsistence livestock raising, the third
agricultural activity, is important in the peripheral lowlands of Ethiopia. Large herds may be kept
by a family as it migrates each season in search of grazing and water.
 Fishing occurs on the country’s rivers and inland lakes and is primarily artisanal. Most of the
fish sold locally is produced by small operators whose scale of operation and technology is
inadequate for export production. Although the fishing industry is small, production more than
doubled during the 1990s. The country does not engage in significant economic activity in the
forestry sector.

4.3. Traditional social norms

Society and Culture

The People

 Ethiopia is a multi-cultural and multi-ethnic country. Religion is a major influence in

Ethiopian life. Nearly half the population belongs to the Ethiopian Orthodox Church but there is
a also large Muslim population. Others adhere to an ancient form of Judaism.
 The Ethiopian Orthodox Church is proud of its origins. The country embraced
Christianity in the 4th century, long before Europe. The feast of the Epiphany ("Timkat") is the
largest festival of the year. The Orthodox Church dominates the political, cultural, and social life
of the population. It was the official religion of the imperial court and of the establishment until
Haile Selassie was deposed in 1974.
 Muslims are important in the business community. They tend to live in the eastern,
southern, and western lowlands, although there are considerable numbers in Addis Ababa.

The Family

The extended family remains the focus of the social system. It includes relatives on both sides of
the family as well as close friends. Quite often the husband’s parents will live with the nuclear
family when they get older and can no longer care for themselves. When people marry, they join
their families, thus ensuring that there will always be a group to turn to in times of need.

Individuals achieve recognition or social standing through their extended family. A family's
honor is influenced by the actions of its members. Family needs are put before all other
obligations, including business.

Etiquette and Customs in Ethiopia

Meeting Etiquette

 Ethiopian greetings are courteous and somewhat formal.

 The most common form of greeting is a handshake with direct eye contact.
 The handshake is generally much lighter than in Western cultures.
 After a close personal relationship has been established people of the same sex may kiss
three times on the cheeks.
 Across genders, men should wait to see if a woman extends her hand.
 Greetings should never be rushed. Take time to inquire about the person’s family, health,
job, etc.
 People are addressed with their honorific title and their first name.
 “Ato", "Woizero", and "Woizrity" are used to address a man, married woman, and
unmarried woman respectively.
 Elders should be greeted first.
 It is customary to bow when introduced to someone who is obviously older or has a more
senior position. Children will often be seen doing so.
 Gift Giving Etiquette

 Gifts may be given to celebrate events of significance or religious occasions.

 Since Ethiopia is an extremely poor country, expensive gifts are not the norm.
 In fact, giving a gift that is too expensive may be viewed negatively. It may be seen as an
attempt to garner influence or it may embarrass the recipient as they will not be able to match it
in kind.
 If you are invited to an Ethiopian’s home, bring pastries, fruit, or flowers to the host.
 A small gift for the children is always appreciated.
 Do not bring alcohol unless you know that your host drinks. Most Muslims and Amharic
people do not.
 Gifts are not opened when received.
 Gifts are given with two hands or the right hand only; never the left hand.

Dining Etiquette

 Ethiopians are hospitable and like to entertain friends in their homes.

 An invitation to a private home should be considered an honour.
 Punctuality is not strictly adhered to although considerable lateness is also unacceptable.
 You may have to remove your shoes at the door.
 Dress well.
 Shake hands with each guest individually.
 A woman should offer to help the hostess with the preparation or clearing up after a meal
is served.
 You will always be offered a cup of coffee. It is considered impolite to refuse.
 Ethiopians are relatively formal and believe table manners are a sign of respect.
 Do not presume that because food is eaten with the hands, there is a lack of decorum.
 Expect a small earthenware or metal jug to be brought to the table before the meal is
served. Extend your hands over the basin while water is poured over them.
 Only use the right hand for eating.
 Hierarchy dictates that the eldest person is the first to take food from the communal plate.
 Guests are often served tasty morsels by another guest in a process called "gursa". Using
his hands, the person places the morsel in the other person’s mouth. Since this is done out of
respect, it is a good idea to smile and accept the offering.
 Expect to be urged to take more food. Providing an abundance of food is a sign of
hospitality.
 The meal ends with ritual hand-washing and coffee.

Coffee Drinking

 The Kaffa province in Ethiopia is renowned for its coffee.

 Coffee is a national drink and its drinking is a ritualized process that generally takes at
least an hour.
 If invited for a formal coffee you may be seated on pillows or grass and flower-strewn
floor with frankincense burning in the background.
 A woman or young boy enters the room to wash and roast the beans over charcoal.
 The roasted beans are then hand-ground and added to boiling water.
 Sugar is put into small cups without handles and the water/coffee mixture is added.
 Inhale the aroma of the coffee before sipping.
 The first round (called "awol") is served, starting with the eldest.
 When the first cup is finished, the "jebena" (coffee pot) is refilled with water.
 The second round (called "tona") is then served. It is weaker than the first since the same
ground beans are used.
 The third round (called "baraka") is served after boiling water is again added to the
jebena.
 Always sip the coffee slowly.

Tipping 

Tipping has been a part of Ethiopian custom for many years.  Although there are no hard and fast
rules when it comes to tipping, it’s worth bearing in mind that many waiting staff in restaurants
are entirely dependent on tips as a means to earn their living.

Business Etiquette and Protocol

 Meeting Etiquette

 Greetings are formal and courteous.

 Handshakes are somewhat prolonged and not especially firm.
 They are always combined with strong, direct eye contact.
 There is generally no touching between the sexes; however, if a foreign businesswoman
extends her hand, a cosmopolitan Ethiopian may accept it to avoid causing her offense.
 Never rush greeting; inquire about people’s families, health and work.
 Government officials may be addressed as "Excellency" without using their name.
 Wait to be invited before moving to a first name basis without the honorific title.
 Business cards are given without formal ritual.
 Present and receive business cards with the right hand only or with both hands.

Communication Style

 Ethiopians can be very sensitive when it comes to communication. Since they have only
recently begun working with foreigners in business situations they are still getting used to new
ways of doing business and communicating.
 As a general rule, they are humble and respect that quality in others. They generally
speak in soft tones. Loud voices are seen as too aggressive. Ethiopians pride themselves on their
eloquent speaking style and expect others to speak clearly and use metaphor, allusion, and witty
innuendos. They often use exaggerated phrases to emphasize a point.
 As a rule, Ethiopians tend to be non-confrontational and offer what they believe is the
expected response rather than say something that might embarrass another. Honour and dignity
are crucial to Ethiopians and they will go out of their way to keep from doing something that
could bring shame to another person. Therefore, it is important to treat your
 Ethiopian business colleagues with utmost professionalism and never do anything that
would make them lose dignity and respect.
 Business Meetings

 Meeting schedules are not very rigid in Ethiopia. There may be an agenda, although it is
not part of the local culture. If one is used, it functions as a guideline for the discussion and acts
as a springboard to other related business topics.
 Since relationships are extremely important, meetings start with extended social
pleasantries. You will be offered tea or coffee and will be expected to ask questions about the
other person and respond to questions about yourself.
 Meetings seldom have a scheduled ending time since it is considered more important to
complete the meeting satisfactorily than be slavishly tied to the clock. The meeting will
end when everyone has had their say and the most senior Ethiopians decide that there is nothing
left to be discussed.
 Performing favours indicates friendship. Therefore, Ethiopians feel obliged to do
something if asked by a friend. Since they generally only conduct business with people they
consider friends, they have difficulty saying "no" to requests from business associates. This does
not indicate that they will do what they have agreed to do, however.

Land owner holds the power

This is an agricultural economy of mainly subsistence farming, little of which is traded. The size

of the capital stock is limited and of low quality resulting in very low labour productivity and
little surplus output left to sell in domestic and overseas markets. In this stage Ethiopia farmers
has the owners land. Especially in the time of hailesellase there was a slogan of “land to the
tiller” which is a student movement and they were struggle the government leading system.

4.4. Transitional society (preconditions for take-off)

 Manufacturing industry begins to develop, and a country develops an international outlook

In Ethiopia, Agriculture becomes more mechanized and more output is traded. Savings and

investment grow although they are still a small percentage of national income (GDP). Some
external funding is required - for example in the form of overseas aid or perhaps remittance
incomes from migrant workers living overseas.
 4.5. Take off 

Short period of intense activity where urbanization increases and industrialization proceeds with

technological breakthroughs.

In case of Ethiopia, Manufacturing industry assumes greater importance, although the number of
industries remains small. Political and social institutions start to develop - external finance may
still be required. Savings and investment grow, perhaps to 15% of GDP. Agriculture assumes
lesser importance in relative terms although the majority of people may remain employed in the
farming sector. There is often a dual economy apparent with rising productivity and wealth in
manufacturing and other industries contrasted with stubbornly low productivity and real incomes
in rural agriculture.

In the take-off stage, the manufacturing industry assumes greater importance to the country,
although there are still few industries. Political and social institutions become more sophisticated
and agriculture assumes lesser importance in relative terms, although most people may remain
employed in the farming sector. A dual economy surges because productivity and wealth in
manufacturing and other industries rise while productivity and real income in agriculture remain
low. In contrast to two previous phases, this stage is self-sustaining due to the establishment of
major manufacturing industries and the transformation of political and social institutions. Most
of the third world countries are in the third stage. In summary, this stage presents a short period
of intensive growth based on an industrialization process in its early stages. 
 4.6. Drive to maturity 

Where industry diversifies and investment is made in infrastructure and improving quality of life
over an extended period

Ethiopia industry becomes more diverse. Growth should spread to different parts of the country
as the state of technology improves - the economy moves from being dependent on factor inputs
for growth towards making better use of innovation to bring about increases in real per capita
incomes.

In this stage, an economy demonstrates the capacity to move beyond the original industries.
Industry becomes more diverse. Growth should spread to different parts of the country as the
state of technology improves – the economy moves from being dependent on factor inputs for
growth towards making better use of innovation bringing increases in real per capita incomes

The drive to maturity is also characterized by a steady consolidation of the newly industrialized
society, a continuous growth of investment, large urban regional metropolitan development, and
improvement of country´s infrastructure. This stage takes place over a long period of time, as
standards of living rise, use of technology increases, and the national economy grows and
diversifies
 4.7. Age of high mass consumption 

Where mass production feeds consumer demands.

Ethiopia Output levels grow, enabling increased consumer expenditure. There is a shift towards
tertiary sector activity and the growth is sustained by the expansion of a middle class of
consumers.

These countries are ranked lowest in terms of the 2015 Human Development Index - many of
these low-income countries remain heavily dependent on primary commodities.

These countries in 2015 had the highest share of employment in the farming industry
 5. Evaluation of Rostow's Five Stages of Economic Growth Model

There is overlap with the Harrod-Domar model i.e. stages 2 and 3 require increased saving and
investment; Stage 4 requires improvements in technology, which reduces the capital-output ratio.

Stages 2 and 3 call for increased savings and investment but many households may not have the
funds to save; the banking channel between savers and firms may be inadequate; the productivity
of individual investment projects may depend upon complementary investment in infrastructure.

Some Sub Saharan African countries have received significant external finance but have been
slow to generate growth - many have remained stuck in Stages 1 or 2.

When the external finance has come in the shape of loans from developed countries, interest
charges have been incurred which have acted as a drag on economic growth.
Simon Kuznets threw doubts upon Rostow's theory. He argued that many countries which have
now reached developed status did so without seeing a significant increase in their savings rate.

The theory does not account for exceptions, e.g. falling output in the USSR under a communist
regime; the corrupt and failing government in Zimbabwe has reversed development advances;
increased globalisation means that a country's growth rate does not lie solely in its own hands
and international competition and protectionism may prevent an economy from moving through
the latter stages.

6. Criticism of the model

Although Rostow’s Stages of Growth model is one of the most influential development theories
of the twentieth century, the framework receives some criticism. First, the model was developed
based on western capitalist countries, which were industrialized and urbanized. Therefore, the
model fails to explain the economic development of new-western countries, such as China.
Second, Rostow´s paradigm does not discuss why certain countries seem to be stuck in certain
phases. For instance, countries in Southeast Asia, Africa, and Latin America have received
significant external finance but have been slow to generate growth as many have remained stuck
in Stages 1 or 2.  Third, the model seems to induce a sort of linearity and does not explain why
some countries reversed their economic growth. Venezuela, Zimbabwe, and Argentina, to some
extent, are societies that impoverished in the last decades. Fourth, because the model was
developed in the 1960s, it does not take into consideration the economic drivers that occurred in
the late 1990s (information technology, communications, internet), the 2000s (digitization and
creative industries) and the 2010s (Industry 4.0, Artificial Intelligence). Fifth, the model seems to
be excessively pre-deterministic and shows no possibility of leapfrogging; according to Rostow,
the economic development must follow an established path, without an alternative route of
growth. Sixth, Rostow assumes that all countries have an equal chance to develop, regardless of
population size, natural resources, or location. Finally, the stages or transition periods happen at
varying lengths from country to country and even from region to region, an issue not covered by
the economic model.    
 7. Conclusion

Rostow´s stages of economic development are a very useful paradigm to understand the
development of countries because the model replicates the mechanism of economic growth
experienced in the wealthier societies of the world. However, the model fails to consider
modern drivers of growth, such as the adoption of new technologies and focuses almost only on
western societies. The model succeeds in many aspects, such as the introduction of the idea
that economic development follows a certain hierarchy and is subject to a specific order.
The framework asserts that all countries exist somewhere on a linear spectrum and climb upward
through each stage of the development process.  In addition, the model correctly expresses that
the preconditions of development include industrialization, urbanization, and trade. The
model also attracts the interest of strategist and policymakers because it is still seen as a roadmap
for a country’s development. Despite the many critiques of Rostow’s model, it is still widely
used by strategists to support the development of their public policies.