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Chapt 03
Chapt 03
Classic Theories
of Economic
Growth and
Development
• Neoclassical theory
– Market friendly approach
– Dualistic approach
– Public choice approach
1. Traditional society
2. Pre-condition to take-off
3. Take-off
4. Drive to maturity
5. Age of high mass consumption
GDP Growth
Economic Growth
Post Take-off
Take-off
Pre Take-off
t1 t2 Time
• Rural-Urban migration
– To find jobs and earn higher wages
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Demand for Labor
Wage
R: Rural U: Urban
W: Wage E: Employment
D: Labor Demand S: Labor Supply
Profit
WU SR
WR
Investment in urban areas
Wage
increases the demand and
DU1 DU2 employment for rural labor.
E1 E2 Employment
Profit
SR
WU
WR Wage
DU1
DU2
E1 = E2 Employment
African LDCS
– income distribution
– public goods
– externalities
– market power
• Technological Advancement
Combination A B C E
100 90 50 0
Radios
Rice 0 40 80 100
50 C
F
E
40 80 100 Rice
100 A B D
90
50 C
E
40 80 100 Rice
90 B
G
50 C
F
E
40 80 100 Rice
Radios
Rice
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 3-29
Technological Advancement
Radios
Rice
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 3-30
Technological Advancement
Rice
Rice
Rice