Models of Development Rostow, Self-Sufficiency, and International Trade Approach

Rostow’s Model of Economic Development

Framework  As a basic assumption, Rostow believes that countries want to modernize as he describes modernization  The society will ascent to the materialistic norms of economic growth.  Emphasizes free trade  Countries go through stages linearly

Traditional Society  Pre-scientific understandings of gadgets  Believe that gods or spirits facilitate the procurement of goods, rather than man and his own ingenuity  The norms of economic growth are completely absent from these societies.

Preconditions to Take-Off  Society begins secular education  Uses capital mobilization (banks and currency)  Entrepreneurial class forms  Manufacturing develops  Leads to a take-off in years

Take-Off  Growth becomes common  Society is driven more by economic processes than traditions  Takes years to reach maturity

Drive to Maturity  Economy begins to diversify  Primary becomes less important, as other sectors grow  Leads to reduction in poverty and rising standard of living

Age of High Mass Consumption  Consumers concentrate on durable goods  A society can focus on three things instead of subsistence: Military and Security Military and Security Equality and Welfare Equality and Welfare Developing luxuries for upper class Developing luxuries for upper class The more developed a country, the lower the percentage of GDP spent on education….

Criticisms of the Model 1. Rostow created his model in hindsight 2. The underlying motive for change is not identified, instead, his model is based on historical data 3. His model is based on American history 4. His model reflects a “capitalist manifesto” 5. Biased towards the west 6. Assumes the country is large, with large population, and abundant natural resources

LDCs on the path to Development

Comparing LDCs and MDCs  GDP per capita has doubled in LDCs, but tripled in MDCs  Natural Increase has dropped by 5% in LDCs, but 83% in MDCs  Infant mortality has dropped by 1/3 in LDCs, but ½ in MDCs

Development in LDCs  LDCs must develop quickly if they want to raise their HDI  LDCs must increase their GDP per capita to make the social and demographic changes necessary to change  Two obstacles include: Adopting policies that successfully promote development Adopting policies that successfully promote development Finding funds to pay for development Finding funds to pay for development

Development through Self- Sufficiency  China and India adopted this strategy  According to the model of self-sufficiency, a country should spread investments as equally as possible, across all sectors, and across all regions  Rural incomes keep pace with urban ones  Aim is to reduce poverty, not make people wealthy

Self-Sufficiency Continued  Another goal is to isolate businesses  Country sets barriers that limit imports of goods  Also limits exports  Three barriers: Setting high taxes on import goods Setting high taxes on import goods Fixing quotas to limit quantity of import goods Fixing quotas to limit quantity of import goods Requiring licenses to restrict number of legal imports Requiring licenses to restrict number of legal imports

India  India required foreign imports to have a license  Government imposed heavy taxes on consumer  Restricted export goods  Made currency inconvertible  Businesses in India required government approval to open a new factory  Government would subsidize

Problems with Self-Sufficiency  Inefficiency: Businesses are often subsidized if they fail to make a profit, so there is no motive to produce high-quality, low-cost goods Businesses are often subsidized if they fail to make a profit, so there is no motive to produce high-quality, low-cost goods Companies are protected from international competition Companies are protected from international competition  Large Bureaucracy: Requires a large bureaucracy to administer control Requires a large bureaucracy to administer control

LDCs on the path to Development

Development through International Trade  Countries have to identify their unique economic assets Petroleum Petroleum Diamonds Diamonds Opals Opals  Countries must focus on developing their resource, and selling it in the world market  A country can benefit from foreign consumers

Rostow…Again  Remember the model? Traditional Society, Preconditions for Take- off, Take-off, Drive to Maturity, and Age of Mass Consumption Traditional Society, Preconditions for Take- off, Take-off, Drive to Maturity, and Age of Mass Consumption  Makes two assumptions: Any country can follow this model to develop Any country can follow this model to develop LDCs have an abundance of raw materials LDCs have an abundance of raw materials

Examples of International Trade  Countries of SW Asia Southwest Asia was one of the least developed regions in the world Southwest Asia was one of the least developed regions in the world Petroleum prices rose, and transformed the region’s GDP per capita income Petroleum prices rose, and transformed the region’s GDP per capita income Development has been very rapid Development has been very rapid  However, some Islamic religious principles conflict with development Role of Women Role of Women Prayer Prayer

Four Asian Dragons  Some of the first countries to adopt the International Trade Approach were S. Korea, Singapore, Taiwan, and Hong Kong  Very few natural resources  Concentrated on producing manufactured goods  Low labor cost

Problems with approach  Uneven resource distribution Most of the oil rich countries are doing well Most of the oil rich countries are doing well Some countries with natural resources cannot afford to access them Some countries with natural resources cannot afford to access them  Market stagnation The world market is shrinking, especially in tough economic times The world market is shrinking, especially in tough economic times  Increased dependence on MDCs LDCs are spending money to take-off, instead of providing food, shelter, and schools LDCs are spending money to take-off, instead of providing food, shelter, and schools

India today  The International Trade Approach is the most preferred model  India has removed most of its trade barriers, and allowed foreign businesses to come in International trade promotes development faster than self- sufficiency

World Trade Organizations  Countries involved in 97% of world trade established the WTO in 1995  It removes trade barriers in two ways: Negotiates reduction or elimination of international trade restrictions on manufactured goods and money Negotiates reduction or elimination of international trade restrictions on manufactured goods and money It enforces agreements between countries It enforces agreements between countries