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Stages Theory of Development

The stages theory of development proposes that countries must pass through universal sequential stages to achieve development. These stages include: [1] Traditional society stage, characterized by subsistence agriculture; [2] Preconditions for take-off stage involving infrastructure investment and agricultural/industrial reforms; [3] Take-off stage of sustained economic growth transforming society; [4] Drive to maturity stage of regular growth with urban/skilled workforce; and [5] Age of mass consumption with consumer goods. The Harrod-Domar model shows that investment is necessary for growth, with growth rate determined by savings rate and capital-output ratio. However, the stages theory is criticized for not explaining why some countries remain underdeveloped or regress,

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111 views4 pages

Stages Theory of Development

The stages theory of development proposes that countries must pass through universal sequential stages to achieve development. These stages include: [1] Traditional society stage, characterized by subsistence agriculture; [2] Preconditions for take-off stage involving infrastructure investment and agricultural/industrial reforms; [3] Take-off stage of sustained economic growth transforming society; [4] Drive to maturity stage of regular growth with urban/skilled workforce; and [5] Age of mass consumption with consumer goods. The Harrod-Domar model shows that investment is necessary for growth, with growth rate determined by savings rate and capital-output ratio. However, the stages theory is criticized for not explaining why some countries remain underdeveloped or regress,

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STAGES THEORY OF DEVELOPMENT

This is of the view that countries must pass through universal sequential stages in attaining development.

Prominent among them is the Rostow’s Stages of Growth Model by American Walt W. Rostow.
According to Rostow, an underdeveloped country must pass through the following five (5) stages to attain
development.
i. Traditional or Primitive Stage
This is characterized by the rural traditional subsistent economy with little communications and
interactions among products and people across different regions. Rostow has little to say about the
concept of traditional society except to indicate that it is based on attitudes and technology prominent
before the turn of the 18th century. The social structure of such societies was hierarchical in which family
and clan connections played a dominant role. Political power was concentrated in the regions, in the
hands of the landed aristocracy supported by a large retinue of soldiers and civil servants. More than 75
per cent of the working population was engaged in agriculture. Naturally, agriculture happened to be the
main source of income of the state and the nobles, which was dissipated on the construction of temples
and other monuments, on expensive funerals and weddings and on the prosecution of wars.
ii. Preconditions for Take-off Stage
Rostow’s preconditions stage for sustained industrialization includes radical changes in three
nonindustrial sectors: (1) increased transport investment to enlarge the market and production
specialization; (2) a revolution in agriculture, so that a growing urban population can be fed; and (3) an
expansion of imports, including capital goods, financed perhaps by exporting some natural resources.
iii. Take-off Stage
Rostow’s central historical stage is the takeoff, a decisive expansion occurring over 20 to 30 years, which
radically transforms a country’s economy and society. During this stage, barriers to steady growth are
finally overcome, while forces making for widespread economic progress dominate the society, so that
growth becomes the normal condition.
Conditions for Take-off
 A rise in the rate of productive investment from, say, 5 per cent or less to over 10 per cent of
national income or net national product;
 The development of one or more substantial manufacturing sectors with a high rate of growth;
 The existence or quick emergence of a political, social and institutional framework which
exploits the impulses to expansion in the modern sector and gives to growth an outgoing
character.

iv. Drive to Maturity


The drive to maturity, a period of growth that is regular, expected, and self-sustained, follows takeoff. A
labor force that is predominantly urban, increasingly skilled, less individualistic, and more bureaucratic
and looks increasingly to the state to provide economic security characterize this stage.

v. Age of High Mass Consumption


The symbols of this last stage, reached in the United States in the 1920s and in Western Europe in the
1950s, are the automobile, suburbanization, and innumerable durable consumer goods and gadgets. In
Rostow’s view, other societies may choose a welfare state or international military and political power.

HARROD-DOMAR GROWTH MODEL


One of the principal strategies of development necessary for any takeoff was the mobilization of domestic
and foreign saving in order to generate sufficient investment to accelerate economic growth. The
economic mechanism by which more investment leads to more growth can be described in terms of the
Harrod-Domar growth model (developed independently by Roy F. Harrod in 1939, and Evsey Domar in
1946),today 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, often labeled A. In one form or another, it has
frequently been applied to policy issues facing developing countries, such as in the two-gap model.

The model shows a functional economic relationship in which the growth rate of gross domestic product
or national income (g) depends directly on the national gross savings rate (s) and inversely on the national
capital-output ratio (c) and depreciation rate on capital.
The growth rate of national income is thus given as:
ASSUMPTIONS OF HARROD-DOMAR MODEL

1. Capital stock is the only constraint to output capacity creation and growth in national income,
apart from the equilibrium condition that aggregate demand be equal to aggregate supply
capacity.
2. The capital-output ratio (c) is constant. This signifies constant returns to scale for capital,
implying implicitly an assumption that diminishing returns are offset by technological progress.
3. As a non-classical model, full employment of labour is not assumed and so labour (skilled or
unskilled) does not constitute a constraint, indicating that there is surplus labour or chronic
unemployment.
4. Labour adjusts proportionally to the growth of capital stock. If such an assumption is dropped,
and labour grows faster than capital stock, then there will be growing unemployment; capital is
thus the limiting factor of production.
5. We can assume skilled labour and manpower development can be incorporated into investment
expenditure as part of human capital stock component of total capital stock.
CRITICISMS OF THE STAGES THEORY OF DEVELOPMENT
a. More savings and investment or increase in capital accumulation is only a necessary but not
sufficient condition for economic growth and development. For example, the Marshall Plan
worked in Europe because countries accumulating capital and receiving foreign aids possessed
the necessary structural, institutional and attitudinal conditions to convert this capital
accumulation to higher level of output. This is not the case in LDCs particularly in Africa.
b. The theory did not focus attention on another strategy of raising income growth, reducing capital-

1
output ratio (c). This is synonymous to increasing the efficiency of capital, A (since =A).
c
Attention was only focused on the saving rate (s).
c. The stages theories could not explain why some countries remain perpetually underdeveloped
or revert to a lower level of development, or the time it takes each stage to unfold itself and
graduate to another stage.
d. After laying the pre-conditions for development, it is possible for such pre-conditions to get lost
through lack of maintenance or sustainable development of the infrastructural facilities.
e. The theory does not perceive that once an economy takes off into drive to maturity, it has the
possibility of crash landing or even crashing during its drive to maturity.
f. In an open economy, the decision to allow any foreign capital inflow to augment domestic
investment resources often leads to costs that dampen growth such as high interest and dividend
payments, foreign debt trap, instability in foreign exchange earnings, etc.

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