Classic Theories and contemporary models of Economic Development Flashcards
What are the main 4 classic literature on Economic Development
- the linear-stages-of-growth model,
- theories and patterns of structural change,
- the international-dependence revolution, and
- the neoclassical, free market counterrevolution.
Linear-Stages Theories:
How did theorists of the 1950s and 1960s define development in relation to economic growth?
They viewed development and aggregate economic growth as synonyms.
Linear-Stages Theories:
What significant program influenced economists’ views on development during this period?
The Marshall Plan, which provided massive financial and technical assistance to rebuild war-torn European countries.
Linear-Stages Theories:
What transformation did industrial nations undergo that served as a lesson for developing countries in Asia, Africa, and Latin America?
They transformed their economies from poor agricultural subsistence societies to modern industrial giants.
What were the two main strands of thought that dominated the economic development discourse in the 1950s and 1960s?
The utility of massive injections of capital (capital accumulation) and the historical experience of now developed countries.
Who was the most influential advocate of the stages-of-growth model of development?
Rostow
What does Rostow’s model describe regarding the transition from underdevelopment to development?
It describes a series of stages through which all countries must proceed, including traditional society, preconditions for takeoff, and take-off into self-sustaining growth.
What was one of the principal strategies of development necessary for any takeoff according to Rostow?
The mobilization of domestic and foreign saving to generate sufficient investment to accelerate economic growth.
Which economic model explains how more investment leads to more growth?
The Harrod-Domar growth model.
Harrod-Domar Growth Model:
What is necessary for an economy to replace worn-out or impaired capital goods?
Every economy must save a certain proportion of its national income.
In addition to replacing capital goods, what is necessary for economic growth according to the Harrod-Domar Growth Model?
New investments representing net additions to the capital stock are necessary.
What does the Harrod-Domar Growth Model describe?
It describes a functional economic relationship where the growth rate of GDP depends directly on the national net savings rate and inversely on the national capital-output ratio.
What does the national capital-output ratio measure in the Harrod-Domar Growth Model?
It measures the actual rate at which an economy can grow for any level of saving and investment, indicating how much additional output can be obtained from an additional unit of investment.
What is the significance of the inverse of the capital-output ratio (1/c) in the Harrod-Domar model?
It represents the output-capital or output-investment ratio, indicating the relationship between output and investment.
