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Ashish Parik

Rostow's Theory
In 1960, the American Economic Historian, W. W. Rostow, suggested that countries passed through five stages of economic development. Stage 1 -- Traditional Society 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 labor intensive using only limited quantities of capital. Resource allocation is determined very much by traditional methods of production. Stage 2 -- Transitional Stage (the preconditions for takeoff) Increased specialization generates surpluses for trading. There is an emergence of a transport infrastructure to support trade. As incomes, savings and investment grow entrepreneurs emerge. External trade also occurs concentrating on primary products. Stage 3 -- Take Off Industrialization increases, 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. The economic transitions are accompanied by the evolution of new political and social institutions that support the industrialization. The growth is self-sustaining as investment leads to increasing incomes in turn generating more savings to finance further investment. 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. Stage 5 -- High Mass Consumption The economy is geared towards mass consumption. The consumer durable industries flourish. The service sector becomes increasingly dominant. According to Rostow, development requires substantial investment in capital. For the economies of LDCs to grow, the right conditions for such investment would have to be created. If aid is given or foreign direct investment occurs at stage 3 the economy needs to have reached stage 2. If the stage 2 has been reached then injections of investment may lead to rapid growth.

Perhaps its main use is to highlight the need for investment. In reality. Like many of the other models of economic developments it is essentially a growth model and does not address the issue of development in the wider context Examples of the different stages of the Rostow model. It does not set down the detailed nature of the pre-conditions for growth. policy makers are unable to clearly identify stages as they merge together. Stage 1: Traditional Society . Thus as a predictive model it is not very helpful. It addition its generalized nature makes it somewhat limited.Ashish Parik Limitations Many development economists argue that Rostows's model was developed with Western cultures in mind and not applicable to LDCs.

860 SINGAPORE 100% $19.670 infant mortality 11 Stage 5: The age of high mass-consumption • Consumer based economy • Direction of trade flows JAPAN % urban 61% per capita income $31.750 8.0/1000 Some tests for the Rostow model.310 .040 35/1000 TAIWAN 75% $8k+ 5.450 infant mortality 4.3 • • GHANA 36% $430 81/1000 THAILAND 19% $2.6/1000 USA 75% $24. % urban per capita income infant mortality SAUDI ARABIA 79% $7.780 24 KUWAIT 100% $23.Ashish Parik Primary activity.350 12/1000 East Asia % urban per capita income HONG KONG 100% $17. Will these countries follow the same pattern? Oil rich Middle East 1.160 infant mortality 12 Stage 4: The drive to maturity • Broadening and deepening • Skills of the workforce • Size of the surplus and investment SOUTH KOREA % urban 74% per capita income $7. mainly subsistence agriculture Socially captured surplus lost on religious and military expenditures AFGANISTAN NEPAL % urban 18% 10% per capita income (?) $160 infant mortality 163 102/1000 Stage 2: Preconditions to take-off • Young elite and role • Infrastructure and its role INDIA (until 2000) % urban 31% per capita income $290 infant mortality 44 Stage 3: Take-off • Target sectors • Channeling surplus MALAYSIA % urban 51% per capita income $3.

regions. Rostow suggests capital is needed for a country to move from its traditional society (stage 1) to the further stages of development.7/1000 Criticisms of Rostow’s Model Capital. however. especially as applied to the experience and prospects of different countries. For the late starters. the situation is entirely different.Ashish Parik infant mortality Self-sufficiency: % urban per capita income infant mortality CHINA (until 1980) 28% $490 44 CUBA 74% $??? 9. Criticism. The reality is that places and regions are interdependent. The fortunes of any given place are increasingly tied up with those of many others. Rostow's model perpetuates the myth of "developmentalism": the idea that every country and region will eventually make economic progress toward "high mass consumption" provided that they compete to the best of their ability within the world economy. Within this stage the country is self sustaining. and services produced by a country in a particular year. economic growth is spreading and with it transport. technology systems and urbanisation develop. War and economic sanctions can drive the model to a halt or even backwards in extreme circumstances. Growth to Self-Sustaining Economic Development. For these early starters. But the main weakness of developmentalism is that it is simply not fair to compare the prospects of late starters to the experience of those places. but also includes the value of income from abroad. In many developing countries within Asia and Africa there have been large injections of cash yet much of the population are still in the traditional society stage. GNP: similar to GDP. and free of precedents. In a nut shell time spans of growth is a much more complicated picture. Drive to Maturity. the horizons were clear: free of effective competition. Rostow puts forward that there is a short time span between take off (stage 2) and maturity (stage 3) when a country becomes self-sustaining.8 4. and countries that were among the early starters. Today's less developed regions must compete in a crowded field while facing numerous barriers that are a direct consequence of the success of some of the early starters. Criticism. simply due to the fact that developing and newly developed countries learn from economically established countries. free of obstacles. This would be applicable to the current political situation in Iraq. It is. but in doing so have incurred massive national debts. too simplistic to be of much help in understanding human geography. Criticism. Countries such as Brazil and Mexico have moved on to the Preconditions for take off (stage 2) economically. This should be remembered in its application. There is possible confusion between the terms GNP and GDP: GDP: an estimate of the total value of all materials. foodstuffs. Rostow's model and his view of the world has become very widespread.4/1000 4. goods. The use of GNP as a tool for indicating the development of a country is limited by its generalizations. .