Alellie B. Sobreviñas, Ph.D.

ale
llie.sobrevinas@dlsu.edu.ph

De La Salle University Manila

School of Economics

Classic Theories of Economic

development: Four Approaches
1950s & 1960s 1. Linear-stages series of successive stages of
economic growth

1970s 2. Structural change used modern economic theory

& statistical analysis to
portray internal process of
structural change

3. International- international & domestic power

dependence relationships, institutional &
structural economic rigidities;
dual economies/societies

1980s & 1990s 4. Neoclassical beneficial role of free markets,

open economics, privatization
of inefficient public
enterprises

1. Linear stages theory- associated

with a uni- directional rather than cyclic view of
development
a. Rostow’s growth model- the transition from
underdevelopment to development can be described
in terms of a series of steps or stages through which
all countries must proceed
i. The traditional society
ii. The preconditions for takeoff into self-sustaining
growth
iii. the take-off
iv. the drive to maturity
v. the age of high mass consumption

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 b. Harrod-Domar model - often referred to as the AK
model because it is based on a linear production
function with output given by the capital stock K times
a constant, labeled as A

● Simplified version of the Harrod-Domar theory of

economic growth
6F c 6F
F = cwhere, Fis rate of growth of GDP; s is net national
savings ratio; c is capital-output ratio

● To grow, economies must save and invest a certain

portion of their GDP. The more they can save and
invest, the faster they can grow.

2. Structural Change Model- focuses on the

mechanisms by which underdeveloped countries transform their
domestic economic structure from a heavy emphasis on
traditional subsistence agriculture to a more modern, urbanized
and industrially diverse manufacturing and services sector

a. Lewis Theory of Development (“two-sector surplus

labor” theoretical model)
- Two sectors:
3.a traditional, overpopulated, rural subsistence sector characterized
by zero marginal labor productivity (surplus labor)
4.high-productivity modern, urban industrial sector into which labor
from the subsistence sector is gradually transferred
- focuses on both the process of labor transfer and the growth of
output and employment in the modern sector

b. Chenery’s patterns of development

● Patterns
1. Shift from agriculture to industrial
2. Steady accumulation of human and physical capital
3. Desire for more manufactured goods instead of food items
(basic necessities and services)
4. Migration from rural to urban – increase in urbanization
5. Increased integration through trade
6. Slow down in population growth – smaller families
● These are “average” patterns of development that were observed
among countries.
● Differences can arise among countries in the pace and pattern of
development depending on their particular set of circumstances
(e.g., a country’s resource, endowment and size, its government’s
policies and objectives, the availability of external capital and
technology, and the international trade environment)

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3. International dependence models
● Underdevelopment is externally induced
● View that developing countries are caught up in a
dependence and dominance relationship with
developed countries
● 3 major schools of thought
i. Neocolonial Dependence Model
ii. False Paradigm Model
iii. Dualistic Development Theory

3. International dependence models

a. Neocolonial Dependence Model
● Underdevelopment resulted from highly unequal

international capitalist system

● Developed countries’ exploitative and neglectful
relationship with developing countries
● Underdevelopment is due to the existence and policies
of industrial capitalist countries of the northern
hemisphere and their extensions in the form of small
but powerful elite or comprador groups (local elites
who act as fronts for foreign investors)

3. International dependence models

b. False Paradigm Model

● underdevelopment resulted from faulty and

inappropriate advise from foreign experts and

donors
● the policies, in many cases, merely serve the vested

interest of existing power groups

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 c. Dualistic Development Theory
● Existence and persistence of the increasing gap between
rich and poor nations and rich and poor peoples on
various levels
● Concept of dualism has 4 key elements:
1. 2 different set of conditions can occur at the same
time, i.e., “superior” and “inferior”, e.g., the
coexistence of wealthy, highly educated elites with
masses of illiterate poor people
2. Gap continues to increase as development takes
place
3. Superior do not uplift the inferior
4. Coexistence is chronic and not merely transitional

4. Neoclassical counterrevolution
● Underdevelopment is primarily internally induced
● Underdevelopment results from poor resource
allocation due to incorrect pricing policies and too
much government intervention
● Implications: Need for free and competitive market;
Privatization of state-owned enterprises;
Deregulation
● Sources of growth: Increase in quality of labor;
Improve capital through investments in technology

Solow neoclassical growth model

● Incorporates the law of diminishing returns to factors of
production (Solow and Swan, 1956)
● Exogenous technological change generates longterm
economic growth.
● Assumption: capital-output ratio is endogenous i.e.
output of an economy depends its initial endowments of
labor and capital
● economies will conditionally converge to the same level
of income if they have the same rates of savings,
depreciation, labor force growth, and productivity
growth