Economic Growth Theories

CHAPTER 2: Literature Review 2.1. Economic Development and Growth Theories

Since the birth of modern economics, there has been countless theories, concepts and ideas surrounding the topic of economic development and the processes and stages a country would have to go through to attain economic relevance. In this chapter, we hope to examine the four most pivotal and relevant theories in modern economic development.

1 The Rostow Linear Stages Model: Walt Whitman Rostow in 1960

2 The Harrod-Domar Savings Model: Roy F. Harrod in 1939, Evsey Domar in 1946

3 The Lewis Dual Sector Model: W. Arthur Lewis in 1954

4 The Solow-Swan Growth Model: Robert Solow and Trevor Swan in 1956

This chapter will be taking a look at the assumptions made in this

Surpluses from production begin to emerge for trading, supported by an emerging transport infrastructure. Savings and investment grow begin to grow in this stage with the emergence of entrepreneurs. These conditions mainly comprise fundamental changes in the social, political and economic fields. Examples of these could be a change in a societies attitude towards technology, a movement away from risk aversion into profit earning, political sovereignty, adaptability of labor and the development of financial institutions and infrastructure.

In short, the foundations for growth begin to be laid in this stage of development with some considering this to be the make or break point in a nations trajectory. In this stage, Rostow views agriculture as performing three roles, firstly, agriculture must produce sufficient food-grains to meet the demands of growing population and of the workers who predominantly get employment in the agricultural sector. Secondly, an increase in agricultural incomes would in turn lead to an increase in the demand for industrial products and thus stimulate industrial investment. Thirdly, an expanding agricultural sector must provide much of the savings needed for the expansion of the industrial

To quote Meier, “stage-making approaches are misleading when they consider a linear conception of history and imply that all economies tend to pass through the same series of stages. Although a particular sequence may correspond broadly to the historical experience of some economies, no single sequence fits the history of all countries. To maintain that every economy always follows the same course of development with a common past and the same future is to over schematize the complex forces of development, and to give the sequence of stages a generality that is