Models of Development Flashcards
Hollis Chenery model
Incorporated elements like the role of investment in physical and human capital, technological progress, and structural change in shaping the growth trajectory.
Provides a more empirical and dynamic perspective on economic growth, recognising that development is not just about capital accumulation but also about structural shifts in the economy.
*Hence recognises role of international system to promote/stifle growth !!
*Assumes countries develop in similar ways, but pace and pattern of development can change
Growth requires structural change
He argued that developing countries often face two gaps: a savings gap and a foreign exchange gap.
Savings Gap: Insufficient domestic savings to finance investment.
Foreign Exchange Gap: Limited foreign currency to import essential capital goods. (K, A, Trade barriers)
If either gap is binding, growth is constrained. Gap bridged through foreign aid or net capital import.
In early stages, growth relies on foreign aid and investment. As income rises, domestic savings become the primary source of investment.
DOMESTIC
Policy Formulation: The model emphasises the need for targeted policies that can stimulate savings and boost foreign exchange earnings, such as investment in export-oriented industries or improving the business environment to attract foreign direct investment.
FOREIGN
International Assistance: It also highlights the role of foreign aid and investment in bridging these gaps. External financing can help fill the savings gap and provide foreign exchange for necessary imports until the economy can generate these resources internally.
This approach has had significant implications for economic policy in many developing countries, including India, which have typically sought to develop by stimulating structural transformations similar to those observed by Chenery and his associates in other developing countries.
DOM: need policies to promote industrialisation (struc change)
Hollis Chenery Model: Critiques
Neglects Institutional Quality and Governance:
Without strong institutions, foreign aid may not translate into productive investment but instead fuel inefficiencies or rent-seeking behaviour.
Ignores Social and Political Factors:
high levels of income inequality, poor labour and property rights can hinder development despite sufficient investment. Countries with unstable political systems may struggle to implement long-term development strategies.
Absorptive Capacity Constraints: domestic misallocation of foreign aid may lead to inflation, exchange rate distortions, or dependency on external financing rather than structural transformation.
Hollis Chenery Model: Example
South Korea (1950s–1970s)
Savings Gap: After the Korean War, South Korea had limited domestic savings and relied heavily on foreign aid from the U.S. to rebuild infrastructure and industry.
Foreign Exchange Gap: The country lacked foreign reserves to import machinery and raw materials for industrialization.
Policy Response: The government encouraged export-led growth, focusing on light manufacturing and then moving to heavy industries (e.g., steel, shipbuilding). Foreign aid was strategically used to build industries that later became self-sufficient, reducing dependence on external financing.
Aid Corruption Example
. Zaire (Now Democratic Republic of Congo) – Mobutu Sese Seko (1965–1997)
Foreign Aid Received: Zaire received billions of dollars in aid from the U.S., IMF, and World Bank during the Cold War.
Corruption:
Much of the aid was embezzled by dictator Mobutu Sese Seko, who accumulated personal wealth estimated at $4–5 billion while the country remained in poverty.
He built extravagant palaces and hid money in Swiss bank accounts.
Infrastructure and public services collapsed despite continued aid inflows.
Outcome:
The country remained one of the poorest in the world, with rampant inflation and economic decline.
After Mobutu’s fall in 1997, the new government found empty treasury accounts despite decades of foreign assistance.
Fundamental Growth Ingredients
- Capital Accumulation (to augment future output/y)
○ Investments in physical and human capital
○ Mobilising domestic saving
○ Increasing capital stock (investment / depreciation)- Growth in population (and therefore labour workforce)
- Technological Progress (↑ outputs for same inputs)
○ Innovations in performing tasks
○ Not uniform concept
○ Neutral / labour/capital saving, labour capital augmenting
○ Skill biased?
International Dependence Revolution (IDR)
1970s as a critique of traditional economic growth models, particularly modernisation theory and neoclassical economics. It argued that underdevelopment in the Global South was not due to internal deficiencies but rather to the exploitative nature of the international economic system, dominated by wealthy, industrialised countries.
- Neo-Colonial/Marxist Dependence: Core-periphery relationship, legacy of colonialism.
- False-Paradigm Model: Wrong policies due to foreign ‘expert’ advice.
- Dualistic Development Thesis: Coexistence of superior/inferior sectors (Prebisch-Singer Hypothesis).
International Dependence Revolution (IDR): Neo-Colonial/Marxist Dependence
Neocolonialism: Post-colonial countries continue to be exploited by rich countries for resources and labour
Core (rich countries): Control trade, technology, and capital.
Periphery (poor countries): Provide raw materials, cheap labor, and markets for the core.
Economic Exploitation: Poor countries remain stuck in supplying raw materials and buying expensive finished goods, preventing them from developing their own industries.
Marxist View: The global capitalist system benefits rich countries while keeping poor countries economically underdeveloped.
Continued Control: Former colonial powers and international institutions (like the IMF and World Bank) maintain control over poorer nations, keeping them dependent.
CRITIQUE
International Dependence Revolution (IDR): Neo-Colonial/Marxist Dependence
Lall (1975) argues that the concept of “dependence” can only serve as a useful analytical tool if it identifies characteristics of peripheral economies that are not found in center countries and those characteristics must be shown to adversely affect the pattern of development of the periphery countries.
minimises dev country’s ability to shape their own development path
Neglecting the Role of Technology and Innovation
overlook the potential benefits of technological transfer, foreign investment, and knowledge exchange, which can help developing countries advance, and ‘leapfrog’
International Dependence Revolution (IDR): The False-Paradigm Model
The False-Paradigm Model argues
underdevelopment isn’t due to inherent flaws, but rather to faulty and inappropriate advice from well-meaning but often uninformed, ethnocentric international experts.
Key Points:
Foreign Experts lack local understanding
Policy application is not transferrable, but still recommended
Unaware of the unique challenges and circumstances of a developing nation
post implementation, waste of resources and no progress
CRITIQUES
International Dependence Revolution (IDR): The False-Paradigm Model
Overemphasis on Foreign Influence
Neglect of Internal Pressures
Lack of Agency: It implies that developing countries have little agency in shaping their own policies, portraying them as passive recipients of external advice rather than active agents in their development.
International Dependence Revolution (IDR): The Dualistic Development Thesis
IDR argued that Third World countries were caught in a relationship of dependence and dominance with developed nations.
Uneven Development: The modern sector is often linked to global markets and multinational corporations, while the traditional sector remains largely isolated and underdeveloped.
Dependence and Dominance: Developing countries are seen as dependent on developed nations for technology, capital, and markets, which reinforces the dominance of the latter.
Exploitation: The dualistic structure is seen as a mechanism for the exploitation of resources and labor in the developing world, benefiting the developed nations.
CRITIQUE
International Dependence Revolution (IDR): The Dualistic Development Thesis
Neglect of State Intervention and International Relations:
The thesis often downplays the role of government policies, regulations, and infrastructure development in promoting sustainable development.
It can overlook the impact of international trade, aid, and investment on the development process.
The Neoclassical Counterrevolution
often associated with the Solow-Swan Model and Market Fundamentalism) advocates for a market-based approach to economic development, emphasising that state intervention is the main barrier to growth. The theory argues that poor growth in developing countries is due to state inefficiency, resource misallocation, and corruption, rather than global economic structures or external dependencies.
Policy Prescription:
Free Markets: Encouraging market-driven solutions where supply and demand determine the allocation of resources.
Trade Liberalisation: Reducing barriers to trade, encouraging foreign direct investment, and integrating into the global economy.
Privatisation: Selling state-owned enterprises to the private sector to improve efficiency and reduce government intervention.
