Bicol College

Cor. J.P. Rizal & R.F. Tabuena Sts.

E-mail address: admin@bc.edu.ph

Janine Aprilyn L Camacho

MM-MPA Course: Economic Development

1. Rostow's stages of Growth

W.w Rostow proposed five statges of development that further explain modernization, known
as rostows stages of growth. According to Rostow, the first stage of economic development consists
of traditional society. Traditional societies focus on the most basic of economic activities, such as
farming and extraction industries like mining and harvesting of timber. The labor force is pretty much
completely unskilled, and scientific and technological development is primitive. Rostow believes that
traditional economies are generally unproductive.

The second stage of economic development is a transitional stage that establish the conditions
necessary for further growth and development. This stage is referred to as preconditions to takeoff. At
this stage, science and technology start to progress, which aids in economic productivity. The savings
caused by increased productivity are saved and invested in other areas, including technology and
infrastructure like roads, bridges, and harbors.

Rostow's third stage is known as takeoff. In this stage, a handful of key new industries start to
emerge in the national economy that help drive further economic growth. For example, the
development of a steel industry may drive growth in an economy with ready access to iron ore. At this
stage, Rostow claims that economic growth becomes the normal state of the economy. He also believed
that this economic growth becomes self-sustaining at this point in development.

The fourth stage is known as the drive to maturity. This stage is about diversification and
expansion. The economy in this stage of growth will be developing new and more sophisticated
industries. For example, an economy going from producing steel and timber products to producing
consumer electronics and computer chips is in the drive to maturity stage. In other words, the economy
moves beyond the key bread and butter industries that fueled its takeoff into a more diverse and
dynamic economic system. The workforce becomes more skilled due to the technological demands of
the emerging industries. Moreover, economies at this stage become less dependent upon imports as
their emerging industries can compete with them.

Rostow's final stage is known as the age of high mass consumption. A high standard of living
marks this stage. Services and consumer goods replace heavy industry as the engine or economic
growth. The current state of the economies of the United States and Western Europe fall within this
stage of development.
2. The Lewi's Theory of development

W. Arthur Lewis outlined a model of economic development. Lewis' model showed that low
wages and poverty in a labour surplus economy will persist so long as the opportunity cost of labour to
the capitalist sector remains low. 

Lewis' model seeks to provide a framework for understanding how relatively poor countries can
develop economically. It begins by assuming that one of the characteristics shared by poor countries is
that their economies tend to consist largely of "subsistence sectors" in which the supply of labor is very
large and the amount of capital invested per worker is very low. 

The Lewis model describes a path whereby a developing economy can foster the growth of a
new "capitalist sector," which will employ a growing share of the excess labor available from the
subsistence sector. Over time, this capitalist sector can come to eclipse the subsistence sector, causing
the overall economy to grow. It was intended as a critique of the neoclassical approach in that labour is
available to the modern or capitalist sector of an economy not in a perfectly elastic supply but upward
sloping rather than flat, and with a distinction between surplus-producing labour and subsistence labour
(the latter of which was a negligible source of net profits for reinvestment, which Lewis saw as the driver
for growth). Lewis also rejected the assumptions of neoclassical economists of perfect competition,
market clearing and full employment and Lewis made the distinction, noted above, between productive
labour, which produced a surplus, and unproductive labour, which did not.

In the Lewis model the transfer of labour from a low- to a high-productivity sector can change
the functional distribution of income in favour of capital owners. IMF research has argued that this is
associated with rising income inequality between individuals too. To manage such inequality, Lewis saw
a key role for government to intervene via taxes and subsidies amongst many other policies.

3. What is the Job density by industry in the Phil.?

In the Philippines, the employment rate measures number of people who have job as a
percentage of labor force. The country's employment rate was registered at 95.2 percent in January
2023, an increase from 93.6 percent in January 2022.Likewise, the unemployment rate in the Philippines
increased to 4.8 percent in January 2023, the highest reading in four months and up from 4.3 percent in
December 2022. The number of unemployed persons stood at 2.37 million, while employment rose by
4.09 million to 47.35 million compared to the same period last year. The services sector accounted for
the largest share of employment (60.7 percent), followed by the agriculture sector (22.2 percent) and
the industry sector (17.1 percent). Meanwhile, labor force participation fell to 64.5 percent from 66.4
percent in December

4. What is the best indicator of economic development of any country?

There are three types of indicator, These are economic,  human or social, and sustainable
indicators. The economic indicators measures are used to  determine the level of development by using
the  income or the money earned by a country.
 However the best economic indicators, is the Gross  Domestic Product (GDP), the gross
national  product (GNP), and the Per Capita Income,  which can be divided into gross national product 
per capita, and Gross domestic product per capita.

 The gross domestic product (GDP) is the value of  all goods and services within a country for  a
given year. GDP is recorded in US dollars.  Richer countries or more developed countries  like the USA
and Germany have a higher  GDP than Barbados, Jamaica, and Haiti.

  Now the gross national product (GNP) is the total value of all goods and services produced by
a country's economy in a given year. It includes all goods and services produced by individuals  in a
country and corporations within and outside a  country and this makes it different from the GDP. 

GNP reflects how much income each person would have if divided equally among the
population. Per Capital means per person. There are two  per capita indicators of economic
development;  those are GNP per capita and GDP per capita. GDP per capita is the value of goods and
services on in a given country divided by the population.  Richer or more developed countries have
a higher GDP per capita than developing countries.  

The GDP per capita is used to compare the  sizes of the economy across countries. The GNP  per
capita however is the dollar value of a  country's final output of goods and services  in a given year
divided by its population.  It reflects how much money each person would have divided equally among
the population. Economic measures have their limitations.  One such limitation is that the economic
measures  do not specify what kinds of goods or services are  produced by countries. They also do not
account  for wealth distribution or the degree of income  inequality in a society. They also do not
identify  if people live fulfilling lives in a country for  example are young people allowed to fulfill their  or
pursue their gifts like playing the violin  or are they allowed to go to school. They do  not capture the
informal economy in a country.  For example, the black market, lessons,  or babysitting. Things of that
nature. Nevertheless, Economic indicators have their limitations and  proved to be insufficient for a
comprehensive  analysis of development. So a non-economic factor  such as inequality of income
distribution for one,  or access to education had to, had to be  accounted for to arrive at a full
understanding  about the development. That is when the United  Nations began to speak about human
development.

5. Does rapid Growth reduced worker output and consumption?

When the growth of the population and labor force is rapid ,the growth of the stock of physical
and human capital must be equally rapid if the decline in their average quantify per worker, is not to
occur. If in the absence of the technical changes, capital stocks do not increase in proportion to the
growth of labor force, then the real wages rates will decline and per capita income growth may slow or
reverse. Conversely, if capital accumulation outpaces the growth of the labor force, wages will increase
and per capita income will also increase. However, if investment were too high, consumption might fall
because of the high rate of saving required to maintain the level of capital per worker. For example, if
new workers are the same amount of physical capital to work with as those already in the labor force,
then the net investment rate must be equal the rate of growth of the labor force.
 In addition, the impact of population is also mediated by average salary and salary structure.
Salary structure affects prices, and prices affect supply and demand, which affect consumption. In a
market-oriented economic system, the impact of population size on market demand affects supply and
demand and prices. Current market demand reflects the effect of supply and demand in previous
periods. Current population size will affect future market demand through prices and supply elasticity.
Population changes are slow, and consumption changes are slow.