Course: Global Problems and Economic Development

Theories of development economics 1.

21 March 2006Judit Ricz

judit.ricz@econ.unideb.hu

Todaro-Smith (2006): 3rd Chapter

(pp. 102-125)

or

http://www.aw-bc.com/info/todaro_smith /Chapter4.pdf

Classic theories

Four approaches:

1. Linear-stages-of-growth model2. Theories of structural change3. International-dependence revolution4. Neoclassical counterrevolution

Today: eclectic approach

Introduction

• Evolution of developmental thoughts

– Economic growth vs. development– New paradigm of development

1. Linear-stages-of-growth model

• after the 2nd WW

• economists of industrialized countries

• no conceptual apparatus

• historian experiences

• central role of capital accumulation

capital fundamentalism

Kuznets: modern economic growth

• inverted U hypothesis (1954)

• six characteristics of modern economic growth

Kuznets, Simon - UK(Nobel Prize in 1971)

"for his empirically founded interpretation of economic growth which has led to new and deepened insight into the economic and social structure and process of development"

Rostow’s stages of growth

• american historian

• transition of development = stages/steps1. the traditional society,

2. the pre-conditions for take-off into self-sustaining growth,

3. the take-off,

4. the drive to maturity,

5. the age of high mass consumption.

Rostow, Walt Whitman

The Process of Economic Growth

(1952)

Harrod-Domar Growth Model

• savings = investments – replacement of worn out capital (depreciation)– new investments

Y/Y = s/k

• economic logic behind

• critics

Components of economic growth

• capital accumulation

• growth in population (labor force)

• technological progress

2. Theories of structural change

• transformation process

Lewis: „two-sector surplus labor” model

Chenery: „patterns of development”

Lewis: „two-sector surplus labor” model

• two sectors:– traditional, rural sector– modern, urban, industrial sector

• output expansion

• rural labor supply curve perfectly elastic

• self-sustaining growth

• critics

Sir Arthur Lewis - UK

with Theodore W. Schultz

(Nobel Prize in 1979)

"for their pioneering research into economic development research with particular consideration of the problems of developing countries"

Chenery: „patterns of development”

• change of economic, industrial and institutional structure

• new industries as engines of economic growth

• contrast to Lewis-model– all economic functions– domestic and international constraints

• empirical studies

• „let the facts speak for themselves”

• „development is an identifiable process of growth and change whose main features are similar in all countries”

• optimistic

• “correct” mix of economic policies

3. International-dependence revolution

• pessimistic

• economists of developing countries

• international dependence, dominance

1. neocolonial dependence model,

2. false-paradigm model,

3. dualistic-development thesis

The neocolonial dependence model

• marxist influence

• „unequal international capitalist system”

• rich – poor, center – periphery– policies of capitalist countries / organizations– external forces

• Dos Santos

The false-paradigm model

• less radical

• external forces to blame, but unintended

• assumptions of mainstream, neoclassical models vs. reality in developing countries

The dualistic-development thesis

• concept of dualism

1. different sets of conditions

2. chronic coexisting divergence

3. differences tend to increase

4. no „trickle down”

Summary of dependence models

• emphasis on international power imbalances

• need for economic, political, and institutional reforms (domestic – worldwide)

• critics

• political implications

4. Neoclassical counterrevolution

• Market Fundamentalism

1. Free Market Approach,

2. Public Choice Theory,

3. Market-Friendly Approach