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Models

The document outlines various economic development models including Rostow's Model, Harrod-Domar Model, Lewis Model, and Kuznets Curve, detailing their stages, assumptions, and criticisms. Rostow's Model describes a linear progression of economic development stages, while the Harrod-Domar Model focuses on growth rates and investment. The Lewis Model emphasizes structural transformation from rural to urban sectors, and the Kuznets Curve illustrates the relationship between industrialization and income inequality, with criticisms highlighting exceptions and challenges to these theories.

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Biyas Datta
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Models

The document outlines various economic development models including Rostow's Model, Harrod-Domar Model, Lewis Model, and Kuznets Curve, detailing their stages, assumptions, and criticisms. Rostow's Model describes a linear progression of economic development stages, while the Harrod-Domar Model focuses on growth rates and investment. The Lewis Model emphasizes structural transformation from rural to urban sectors, and the Kuznets Curve illustrates the relationship between industrialization and income inequality, with criticisms highlighting exceptions and challenges to these theories.

Uploaded by

Biyas Datta
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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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Models: -

1. Rostow’s Model

a. Traditional society: -
This stage is characterized by a subsistent, agricultural-based economy with intensive labor
and low levels of trading, and a population that does not have a scientific perspective on the
world and technology
b. Precondition to the take off period: -
Here, a society begins to develop manufacturing and a more national/international—as
opposed to regional—outlook.
c. Take off period
short period of intensive growth, in which industrialization begins to occur, and workers and
institutions become concentrated around a new industry.
d. Age of high mass consumption
This stage takes place over a long period of time, as standards of living rise, the use of
technology increases, and the national economy grows and diversifies
e. Drive to maturity
The time of writing, Rostow believed that Western countries, most notably the United States,
occupied this last "developed" stage. Here, a country's economy flourishes in a capitalist
system, characterized by mass production and consumerism.

Criticism: -

 all countries do not develop in such a linear fashion; some skip steps or take different
paths. Rostow's theory can be classified as "top-down," or one that emphasizes a trickle-
down modernization effect from urban industry and western influence to develop a
country as a whole.
 a "bottom-up" development paradigm, in which countries become self-sufficient through
local efforts, and urban industry is not necessary.
 Rostow also assumes that all countries have a desire to develop in the same way, with
the end goal of high mass consumption, disregarding the diversity of priorities that each
society holds and different measures of development.
 Rostow assumes that all countries have an equal chance to develop, without regard to
population size, natural resources, or location

Harrod domar model

1) A full-employment level of income already exists.


2) There is no government interference.
3) The model is based on the assumption of closed economy.
4) There are no lags in adjustment of variables

Actual growth: - it happens when there is a change in the income by the total income
G= y^/y

Warranted growth: - it happens when the economy is working in it’s full capacity

Gw Cr=S

Natural growth: - The natural growth rate also known as the potential or the full employment rate of
growth is the rate of economic growth required to maintain full employment. The natural growth
rate regarded as ‘the welfare optimum

GnCr = or ≠s

Lewis Model: -

 One of the best-known early theoretical models of development that focused on the
structural transformation
 In the Lewis model, the underdeveloped economy consists of two sectors:
 a traditional, overpopulated, rural subsistence sector characterized by zero marginal labour
productivity—a situation that permits Lewis to classify this as surplus labour in the sense
that it can be withdrawn from the traditional agricultural sector without any loss of output—
and
 a high-productivity modern, urban industrial sector into which labour from the subsistence
sector is gradually transferred
 The speed with which this expansion occurs is determined by the rate of industrial
investment and capital accumulation in the modern sector.
 This process of modern-sector self-sustaining growth and employment expansion is assumed
to continue until all surplus rural labour is absorbed in the new industrial sector

Assumptions:-

 There is surplus labour in the sense that MPLA is zero,


 All rural workers share equally in the output so that the rural real wage is determined by the
average and not the marginal product of labour
Criticisms :-

 the rate of labour transfer and employment creation in the modern sector is proportional to
the rate of modern-sector capital accumulation. The faster the rate of capital accumulation,
the higher the growth rate of the modern sector and the faster the rate of new job creation.
But what if capitalist profits are reinvested in more sophisticated labour-saving capital
equipment
 surplus labour exists in rural areas while there is full employment in the urban areas. Most
contemporary research indicates that there is little surplus labour in rural locations. True,
there are both seasonal and geographic exceptions to this rule, ), but by and large,
development economists today agree that Lewis’s assumption of rural surplus labour is
generally not valid
 a competitive modern-sector labour market that guarantees the continued existence of
constant real urban wages up to the point where the supply of rural surplus labour is
exhausted.
 assumption of diminishing returns in the modern industrial sector. Yet there is much
evidence that increasing returns prevail in that sector

Kuznets Curve:-

 The Kuznets curve shows that when a nation undergoes industrialization, the centre of the
nation’s economy will shift towards urban centres. As internal migration by farmers looking
for better-paying jobs in urban hubs causes a significant rural-urban inequality gap, the rural
population will decrease and the urban population will increase.

 When a certain level of average income is set and the process of industrialisation is in full
swing, inequality is expected to decrease. Kuznets believed that inequality would follow an
inverted “U” shape as it rises and falls with an increase in income per capita

Criticism:-

The economic rise of East Asia has been used to criticize the validity of the Kuznets curve theory. The
rapid economic rise of Japan, South Korea, China, Singapore – known as the Four Asian Tigers –
between 1965 and 1990, was called the East Asian Miracle. Manufacturing and export grew quickly
and powerfully. Yet simultaneously, life expectancy was found to increase and population levels living
in absolute poverty decreased.

Hirschman

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