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Economic Development Chap 3 (1)

The document discusses various economic development theories, including Rostow's stages-of-growth model and the Harrod-Domar growth model, highlighting concepts such as surplus labor, capital-output ratio, and necessary conditions for growth. It also addresses structural change theory, dependence theory, and the Lewis two-sector model, emphasizing the transformation of economies from agriculture to industry. Additionally, it covers market dynamics, including market failure, the role of government, and the implications of neoclassical economics on development policies.

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4 views

Economic Development Chap 3 (1)

The document discusses various economic development theories, including Rostow's stages-of-growth model and the Harrod-Domar growth model, highlighting concepts such as surplus labor, capital-output ratio, and necessary conditions for growth. It also addresses structural change theory, dependence theory, and the Lewis two-sector model, emphasizing the transformation of economies from agriculture to industry. Additionally, it covers market dynamics, including market failure, the role of government, and the implications of neoclassical economics on development policies.

Uploaded by

shamelletorres2
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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ECONOMIC DEVELOPMENT- CHAP 3 SURPLUS LABOR The excess supply of labor

STAGES-OF-GROWTH MODEL OF over and above the quantity demanded at the going
DEVELOPMENT A theory of economic free- market wage rate. In the Lewis two-sector
development, associated with the American model of economic development, surplus labor
economic historian Walt W. Rostow, according to refers to the portion of the rural labor force whose
which a country passes through sequential stages in marginal productivity is zero or negative.
achieving development. PRODUCTION FUNCTION A technological or
HARROD-DOMAR GROWTH MODEL A engineering relationship between the quantity of a
functional economic relationship in which the good produced and the quantity of inputs required
growth rate of gross domestic product (g) depends to produce it.
directly on the national net savings rate (s) and AVERAGE PRODUCT Total output or product
inversely on the national capital-output ratio (c). divided by total factor input (e.g., the average
CAPITAL-OUTPUT RATIO A ratio that shows product of labor is equal to total output divided by
the units of capital required to produce a unit of the total amount of labor used to produce that
output over a given period of time. output).

NET SAVINGS RATIO SAVINGS expressed as a MARGINAL PRODUCT The increase in total
proportion of disposable income over some period output resulting from the use of one additional unit
of time. of a variable factor of production (such as labor or
capital). In the Lewis two-sector model, surplus
NECESSARY CONDITION A condition that labor is defined as workers whose marginal product
must be present, although it need not be in itself is zero.
sufficient, for an event to occur. For example,
capital formation may be a necessary condition for SELF-SUSTAINING GROWTH Economic
sustained economic growth (before growth in output growth that continues over the long run based on
can occur, there must be tools to produce it). But for saving, investment, and complementary private and
this growth to continue, social, institutional, and public activities
attitudinal changes may have to occur. PATTERNS-OF-DEVELOPMENT ANALYSIS
SUFFICIENT CONDITION A condition that An attempt to identify characteristic features of the
when present causes or guarantees that an event will internal process of structural transformation that a
or can occur; in economic models, a condition that “typical” developing economy undergoes as it
logically requires that a statement must be true (or a generates and sustains modern economic growth
result must hold) given other assumptions. and development.

STRUCTURAL-CHANGE THEORY The DEPENDENCE The reliance of developing


hypothesis that underdevelopment is due to countries on developed-country economic policies
underutilization of resources arising from structural to stimulate their own economic growth.
or institutional factors that have their origins in both Dependence can also mean that the developing
domestic and international dualism. Development countries adopt developed-country education
therefore requires more than just accelerated capital systems, technology, economic and political
formation. systems, attitudes, consumption patterns, dress, and
so on.
STRUCTURAL TRANSFORMATION The
process of transforming an economy in such a way DOMINANCE In international affairs, a situation
that the contribution to national income by the in which the developed countries have much greater
manufacturing sector eventually surpasses the power than the less developed countries in decisions
contribution by the agricultural sector. More affecting important international economic issues,
generally, a major alteration in the industrial such as the prices of agricultural commodities and
composition of any economy. raw materials in world markets.

LEWIS TWO-SECTOR MODEL A theory of NEOCOLONIAL DEPENDENCE MODEL A


development in which surplus labor from the model whose main proposition is that
traditional agricultural sector is transferred to the underdevelopment exists in developing countries
modern industrial sector, the growth of which because of continuing exploitative economic,
absorbs the surplus labor, promotes political, and cultural policies of former colonial
industrialization, and stimulates sustained rulers toward less developed countries.
development. UNDERDEVELOPMENT An economic situation
characterized by persistent low levels of living in
conjunction with absolute poverty, low income per MARKET-FRIENDLY APPROACH The notion
capita, low rates of economic growth, low historically promulgated by the World Bank that
consumption levels, poor health services, high death successful development policy requires
rates, high birth rates, dependence on foreign governments to create an environment in which
economies, and limited freedom to choose among markets can operate efficiently and to intervene
activities that satisfy human wants. only selectively in the economy in areas where the
CENTER In dependence theory, the economically market is inefficient.
developed world. MARKET FAILURE A market’s inability to
PERIPHERY In dependence theory, the deliver its theoretical benefits due to the existence
developing countries. of market imperfections such as monopoly power,
lack of factor mobility, significant externalities, or
COMPRADOR GROUP In dependence theory, lack of knowledge. Market failure often provides
local elites who act as fronts for foreign investors. the justification for government intervention to alter
FALSE-PARADIGM MODEL The proposition the working of the free market.
that developing countries have failed to develop CAPITAL-LABOR RATIO The number of units
because their development strategies (usually given of capital per unit of labor.
to them by Western economists) have been based on
an incorrect model of development, one that, for SOLOW NEOCLASSICAL GROWTH MODEL
example, overstresses capital accumulation or Growth model in which there are diminishing
market liberalization without giving due returns to each factor of production but constant
consideration to needed social and institutional returns to scale. Exogenous technological change
change. generates longterm economic growth.

DUALISM The coexistence of two situations or CLOSED ECONOMY An economy in which


phenomena (one desirable and the other not) that there are no foreign trade transactions or other
are mutually exclusive to different groups of society economic contacts with the rest of the world.
— for example, extreme poverty and affluence, OPEN ECONOMY An economy that practices
modern and traditional economic sectors, growth foreign trade and has extensive financial and
and stagnation, and higher education among a few nonfinancial contacts with the rest of the world.
amid large-scale illiteracy
AUTARKY A closed economy that attempts to be
completely self-reliant. ALL GLORY TO GOD

NEOCLASSICAL COUNTERREVOLUTION
The 1980s resurgence of neoclassical free-market
orientation toward development problems and
policies, counter to the interventionist dependence
revolution of the 1970s.
FREE MARKETS The system whereby prices of
commodities or services freely rise or fall when the
buyer’s demand for them rises or falls or the seller’s
supply of them decreases or increases.
FREE-MARKET ANALYSIS Theoretical
analysis of the properties of an economic system
operating with free markets, often under the
assumption that an unregulated market performs
better than one with government regulation.
PUBLIC-CHOICE THEORY (NEW
POLITICAL ECONOMY APPROACH) The
theory that self-interest guides all individual
behavior and that governments are inefficient and
corrupt because people use government to pursue
their own agendas.

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