ECON 317: ECONOMIC GROWTH AND

DEVELOPMENT I
TOPIC 3: Classic Theories of Economic Development – Development as
Growth and the Linear-Stages Theories

LECTURER: DR. ADU OWUSU SARKODIE

aosarkodie@ug.edu.gh

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Objectives of the Study
• The overall objective of this study is to introduce
students to the various models of development.

• The specific objectives are to:

• Understand how countries develop.
• Identify the strategies that can be adopted to help
countries to develop.
• Learn the various approaches to development.

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 Models of Development

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1. Linear-stages model

• The Linear-stages model viewed the process of development

as a series of successive stages of economic growth through
which all countries must pass.

• This model stressed on the right quantity and mix of saving,

investment and foreign aid that was necessary to enable
developing countries proceed along the growth path
previously followed by more advanced countries.

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• Economic development was synonymous to rapid economic
growth.

• The most influential of the stages-of-growth model of

development was that by Rostow.

• Walt W. Rostow argued that the transition from a state of

underdevelopment to development can be described in
terms of a series of stages/steps through which all countries
must proceed.
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Rostow’s stages of growth

• Traditional Society

• Pre-conditions

• Take-off

• Drive to maturity

• High mass consumption

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Rostow - Stages of Growth

• The work of American

Walt W. Rostow
• Rostow is an economic
historian
• Countries can be placed
in one of five categories
in terms of its stage of
growth:
A child in Sierra Leone making
breakfast. Which stage would a
country like Sierra Leone fit in?
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 Rostow - Stages of Growth

1. Traditional Society
• Characterised by
• subsistence economy –
output not traded or
recorded
• existence of barter
• high levels of agriculture
and labour intensive
agriculture
Village in Lesotho. 86% of the resident
workforce in Lesotho is engaged in
subsistence agriculture.
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 Rostow - Stages of Growth
2. Pre-conditions:
• Development of mining
industries
• Increase in capital use in
agriculture
• Necessity of external funding
• Some growth in savings and
investment
The use of some capital equipment can help
increase productivity and generate small
surpluses which can be traded.
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 Rostow - Stages of Growth
3. Take off:
• Increasing industrialisation
• Further growth in savings
and investment
• Some regional growth
• Number employed in
agriculture declines

At this stage, industrial growth may be

linked to primary industries. The level of
technology required will be low.
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 Rostow - Stages of Growth

4. Drive to Maturity:
• Growth becomes self-
sustaining – wealth
generation enables further
investment in value adding
industry and development
• Industry more diversified
• Increase in levels of
technology utilised
As the economy matures, technology plays
an increasing role in developing high value
added products.
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 Rostow - Stages of Growth
5. High mass consumption
• High output levels
• Mass consumption of
consumer durables
• High proportion of
employment in service
sector

Service industry dominates the economy –

banking, insurance, finance, marketing,
entertainment, leisure and so on.
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 Criticisms of Rostow’s Model
• Outmoded and too simple

• Not all countries follow the same development path; some countries may
skip some stages.

• It assumes all countries start off the same, and have the same resources,
population and climate.

• Model does not look at how the development of some countries was at
the expense of other countries, particularly during colonization.

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 Criticisms of Rostow’s Model cont’d
• It is “historical” in the sense that end-result is known at the outset, and is
derived from the historical geography of developed countries.

• Efficiency of use of investment – in palaces or productive activities?

• Will such investment yield growth? Not necessarily

• Need for other infrastructure – financial infrastructure, human resources

(education, health), roads, rail, communications networks, digital.

• Rostow argued economies would learn from one another and reduce the
time taken to develop – has this happened?
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 2. Market Based

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 Market Based
• Development is determined by the extent to which the market is able
to allocate resources.

• The price signal acts to allocate scarce resources.

• Governments should limit interference in the working of the economy.

• Government’s role is to encourage enterprise and to reduce regulation

and inefficiencies in free markets and establish ownership of property
rights.
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 Problems:

• Existence of market failure – externalities, monopoly power,

public goods.

• Lack of infrastructure – education and health, public

transport, legal structure.

• Problems of equity in allocation – wealth and income

distribution.
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3. International Dependence

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 International Dependence
• International division of labour – rich in high value activity, poor in low
value, can be traced back to colonial and imperial dominance.

• Dominance of political decision making in the hands of a few wealthy and

powerful groups who aim to maintain the status quo.

• Such interest groups also exercise power over international institutions

and initiatives such as the World Trade Organisation, International
Monetary Fund, Kyoto talks, etc.

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 International Dependence
• Advice given to poorer nations
has been poor – e.g. lending to
less developed countries,
investment advice, etc.

• Inability to solve the debt crisis

and protectionism continues to
The International Dependence model can
prevent development of
perhaps be exemplified by the lack of poorest countries
progress on reducing emissions to restrict
climate change and freeing up international
trade.
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 The International-Dependence Revolution

• Within this general approach are three major streams of

thought:

• The neocolonial dependence model,

• The false-paradigm model, and

• The dualistic-development thesis

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 A. The Neocolonial Dependence Model:

• This is an indirect outgrowth of Marxist thinking.

• It attributes the existence and continuance of underdevelopment primarily

to the historical evolution of a highly unequal international capitalist system
of rich country–poor country relationships.

• It argues that the unequal power relationships between the centre (the
developed countries) and the periphery(the developing countries) renders
attempts by poor nations to be self-reliant and independent difficult and
sometimes even impossible.
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 B. The False-Paradigm Model:

• This model attributes underdevelopment to faulty and inappropriate advice

provided by well-meaning but often uninformed, biased, and ethnocentric
international “expert” advisers from developed-country assistance agencies
and multinational donor organizations.

• The development advice proposed by experts are usually complex, relying on

misleading models of development, but often lead to inappropriate or
incorrect policies.

• Because of institutional factors, such as the resilient traditional social

structures, these policies only end up entrenching the vested interests of the
elite in society.
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 The Dualistic-Development Thesis:
• This is based on the notion of a world of dual societies, of rich nations and poor
nations and, in the developing countries, pockets of wealth within broad areas of
poverty.

• The model argues that there is the existence and persistence of substantial and
even increasing divergences between rich and poor nations and rich and poor
peoples on various levels.

• The degrees of superiority or inferiority do not show any signs of diminishing, but
have an inherent tendency to increase.

• The existence of the superior elements does little or nothing to pull up the
inferior element, let alone “trickle down” to it.
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 Criticism:
• Offers causes but no
solutions

Talks to free up trade have been going on for

many years; progress is slow.

We know that protectionism is

disadvantageous to developing countries but
how do we go about putting in place solutions
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to help solve the problem? 26
 4. Structural Change

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 Structural Change
• Structural change models focus on the different productivity levels of
economies.

• Process of structural change determines the rate of development.

• Less developed nations – tend to be dominated by primary industries – low

value added, difficult to generate wealth and thus sources of investment.

• Developed nations – diverse economies, high value added, high levels of

investment.

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 Lewis 2 Sector model
• Movement from low-value Agriculture to high value Industrial sector creating higher
productivity and wealth generation.

• Incentives to encourage workers to migrate from rural economy to urban.

• Rural workers have very low if not zero marginal productivity.

• Wage premiums in urban industry 30% above rural wages would encourage migration
from rural to urban whilst still allowing profits to be made.

• Re-investment
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of profits would lead to a self perpetuating development 29
50
SectorSSSssare of Employment and GDP (%),
% of EMP’T & GDP

45 2017 43.5
46

40 38.3

35
32.7

30

25
21.2
20 18.2

15

10

0
AGRIC INDUSTRY SERVICE
% of Employment % of GDP
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 Criticisms:

• Labour re-allocation not always productive.

• Wealth not re-invested locally, wealth goes abroad.

• Imperfections in the labour market.

• Importance of complementary policies

by all countries involved
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 Assignment
1. Based on Ghana’s economic performance where do you find the
Ghanaian economy on Rostow’s growth and development stage?
[hint: read reports from World Bank, International Monetary Fund’s (IMF),
United Nations (UN), and Government of Ghana Budget statements,
2021].

2. Within the context of Structural model of growth and development,

how can Ghana make the rural-urban migration more beneficial for the
Ghanaian economy?

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