classic theories econ growth

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Classic Theories

of EconomicGrowth and

Development

Report: Kristine Sabillo for PS 222 (AY 2012-2013)July 4 2013 ! Asian "enter #ni$ersity of t%e P%ilippine - &ili'an

Todaro & Smith, Ch. 3 of EconomicDevelopment, 11th Edition



INT!D"CTI!N

E#E$ N%TI!N

STI#ES ! DE#E'!()ENTBut economic progress is not the only component

DE#E'!()ENT * material & financial

+idespread realiation - national contet /international economic / social s0stem



!" %((!%CES

(ost +orld +ar II

1.'inear sta2es of 2rowth.Theories and patterns of str4ct4ral chan2e

3. International5dependence revol4tion

6.Neo5classical, free mar7etco4nterrevol4tion



(!ST +!'D +% II

Contet8

- Strule to rebuil- Post*ar e+ono'i+ boo'

- &e'an for +onsu'er

oos

- ,lo*in forein ai to +ountries lie P.

- P. +onte/t: ell rae A+t (no i'port uties for

#S prou+ts)



I. 'INE% ST%GESTE!$



I. 'INE% ST%GES TE!$

DE#E'!()ENT %S G!+T

(ost5war interest on poor nations- +ono'ists %a no +on+eptual apparatus for larely

ararian +ountries *o 'oern e+ono'i+ stru+tures

Strands of tho42ht

- ars%all Plan: #S finan+ial an te+%ni+alassistan+e to *ar-torn uropean +ountries

- All 'oern inustrial nations *ere on+e

unere$elope ararian so+ieties




ostow9s

Sta2es of

Growth

5 &e$elope +ountries alreay passe all staes6 #nere$elope in

traitional an pre+onitions stae s%oul 7ust follo* rules of e$8t to

self-sustainin e+ono'y




The arrod5Domar Growth )odel9 t%e rate of ro*t% of &P ( Y/Y) is determined jointly

by the net national savings ratio, s, and the nationalcapital-output ratio, c.

: To 2row, economies m4st save and invest

* !ther components8 la;or force 2rowth & technolo2ical pro2ress

9Sa'ple:

9 "ountries able to sa$e 1;< to 20< *oul e$elop faster

9 PR=>: relati$ely lo* le$el of ne* +apital for'ation in 'ost poor

+ountries A?S@R: t%rou% eit%er forein ai or pri$ate forein

in$est'ent (7ustifie ars%all plan for e$elopin *orl)




(!<'E)S8

9 e+%anis's of e$elop'ent e'boie in t%et%eory &=S ?= A>@AYS @=RK

9 @.Y ore sa$ins an in$est'ent are not

suffi+ient

9 @ore for urope be+ause of ne+essary

stru+tural institutional an attituinal +onitions



II. ST"CT"%'C%NGE )!DE'S



II. ST"CT"%' C%NGE

5SECT! S"('"S )!DE'=

'E+IS TE!$ ! DE#E'!()ENT

- Stru+tural transfor'ation of a subsisten+e e+ono'y

9 Presen+e of 2 se+tors: o$erpopulate rural se+tor *

Bero 'arinal labor prou+ti$ity an a %i%-prou+ti$ity

inustrial se+tor

9 ransfer of labor fro' traitional to 'oern ro*t% of

prou+t output



II. ST"CT"%' C%NGE


- ro*t% until surplus labor is absorbe by inustrial se+tor

- 'ewis t4rnin2 point8 e+linin labor-to-lan ratio

('arinal prou+t of rural labor no loner 0) C labor

supply +ur$e positi$ely slope as 'oern-se+tor *ae D

e'ploy'ent ro*



II. ST"CT"%' C%NGE


CITICIS)S:

16 Assu'es labor transfer D e'ploy'ent +reation proportional to

+apital a++u'ulation6 ut *%at if profits in$este in labor-

sa$in eEuip'ent

26 "onte'porary resear+% s%o* little surplus labor in rural areas(e/+ept in so'e +ountries lie "%ina)

36 #rban surplus labor

46 @aes in+rease a'i une'ploy'ent



II. ST"CT"%' C%NGE

(%TTENS ! DE#E'!()ENT %N%'$SIS9 S%ift fro' ari to inustrial prou+tion

9 Steay a++u'ulation of p%ysi+al an %u'an +apital

9 "%ane in +onsu'er e'an fro' basi+ ne+essities to i$erse

'anufa+ture oos

9 ro*t% of +ities an urban inustries

9 &e+line in fa'ily siBe a o$erall population

- Proponents of stru+tural +%ane 'oel prefer fa+ts to spea for

t%e'sel$es unlie t%eories su+% as staes of ro*t%



II. ST"CT"%' C%NGE

C!NC'"SI!NS9 )a>or h0pothesis8 e$elop'ent is an ientifiable pro+ess of

ro*t% an +%ane *it% features si'ilar in all +ountries6

9 Proble': %e 'oel oes not re+oniBe ifferen+es fa+tors

influen+in e$elop'ent pro+ess6

9 >i'itations of e'p%asiBin patterns o$er t%eory6 ay ra*

*ron +on+lusions about +ausality69 =pti'isti+ t%at +orre+t 'i/ of poli+ies *ill enerate benefi+ial

patterns



III. INTEN%TI!N%'5DE(ENDENCE

E#!'"TI!N




E#!'"TI!N

1?@As B International5dependence models

2ained s4pport ;eca4se of disenchantment

w= sta2es and str4ct4ral5chan2e models9 es4r2ence in vario4s forms in the 1st cent4r0

Developin2 co4ntries ca42ht in a dependence anddominance relationship with rich co4ntries be+ause

of institutional politi+al an e+ono'i+ riiities C iffi+ulty

for poor nations to be self-reliant an inepenent




E#!'"TI!N

1. NE!C!'!NI%' DE(ENDENCE )!DE'- Gnire+t outro*t% of ar/ist t%inin

- #nere$elop'ent as result of %istori+al e$olution of %i%ly

uneEual international +apitalist syste' of ri+% +ountry-poor

+ountry relations%ips

- Rearless if intentional nations are uner uneEual po*er

relations bet*een t%e center an t%e peripher0




E#!'"TI!N

1. NE!C!'!NI%' DE(ENDENCE )!DE'- S'all elite rulin +lass (lanlors entreps 'ilitary rulers

'er+%ants publi+ offi+ials et+6) interests (no*inly or not) toperpetuate t%e international +apitalist syste' of ineEuality

- %e elite ser$e or are re*are by international spe+ial-

interest po*er roups tie by alleian+e or funin to *ealt%y

+apitalist +ountries- lites8 $ie*points in%ibit enuine refor' efforts an 'ay lea

to e$en lo*er le$els of li$in an perpetuation of

uner$elop'ent

- /ternal-inu+e aainst internal +onstraints




E#!'"TI!N

1. NE!C!'!NI%' DE(ENDENCE )!DE'- Re$olutionary strules or 'a7or restru+turin of *orl

+apitalist syste' reEuire to free epenent nations

- Theotonio Dos Santos: &epenen+e as +onitionin situation

H /pan base on e/pansion of o'inant +ountriesH &o'inant

+ountries * te+%noloi+al +o''er+ial +apital an

so+iopoliti+al preo'inan+e +an e/ploit an e/tra+t lo+alsurplusH &epenen+e as base on t%e international i$ision of

labor I inustrial e$elop'ent in so'e an restri+te in ot%ers




E#!'"TI!N

1. NE!C!'!NI%' DE(ENDENCE )!DE'

9 (ope ohn (a4l II: =ne 'ust enoun+e t%e e/isten+e of

e+ono'i+ finan+ial an so+ial 'e+%anis's *%i+%

alt%ou% t%ey are 'anipulate by people often fun+tion

al'ost auto'ati+ally t%us a++entuatin t%e situation of

*ealt% for so'e an po$erty for t%e rest6 %ese

'e+%anis's *%i+% are 'aneu$ere ire+tly or inire+tlyby t%e 'ore e$elope +ountries by t%eir $ery

fun+tionin fa$or t%e interests of t%e people 'anipulatin

t%e'6 ut in t%e en t%ey suffo+ate or +onition t%e

e+ono'ies of t%e less e$elope +ountries6




E#!'"TI!N

. %'SE5(%%DIG) )!DE'- less-rai+al

- "nderdevelopment as res4lt of fa4lt0 and inappropriate

advice ;0 well5meanin2, tho42h 4ninformed or ;iased

advisers from developed co4ntr0 a2encies and or2s

- Gnappropriate poli+ies 'erely ser$in $este interests of

e/istin po*er roups (o'esti+ an international)- Gntelle+tuals e+ono'ists +i$il ser$ants traine in alien an

irrele$ant @estern +on+epts




E#!'"TI!N

3. D"%'ISTIC5DE#E'!()ENT TESIS

D4alism B diver2ence ;etween rich and poor nations,

rich and poor peoples on vario4s levels




E#!'"TI!N

6 E$ %G")ENTS- &ifferent sets of +onitions +oe/ist: ri+% an poor 'oern

an traitional (>e*is 'oel) elites an 'asses po*erfulinustrialiBe nations an i'po$eris%e peasant so+ieties

- "%roni+ +oe/isten+e (not te'porary) of *ealt% an po$erty

*ill not be re+tifie in ti'e6

- &erees of superiority or inferiority s%o* no sins ofi'inis%in an instea in+reases

- Superior ele'ent oes little to pull up or tri+le o*n to t%e

inferior ele'ent 'ay e$en pus% it o*n




E#!'"TI!N

- G&R 'oels a'i ieoloi+al ifferen+es all re7e+t t%e

e'p%asis on traitional neo+lassi+al e+ono'i+ t%eories

- Luestion $aliity of t%e >e*is-type 'oels re7e+t "%eneryobser$ation of *ell-efine e'piri+al patterns t%at s%oul

be follo*e by poor +ountries

- 'p%asis on international po*er i'balan+es an nee for

e+ono'i+ politi+al an institutional refor's (internal D

*orl)

- /propriation of pri$ate assets * e/pe+tation t%at publi+

asset o*ners%ip an +ontrol *ill %elp aress po$erty D

une'ploy'ent




E#!'"TI!N

+E%NESSES8- Appealin e/planation but no insi%t on %o* +ountries

initiate an sustain e$elop'ent

- A+tual e+ono'i+ e/perien+e of e$elopin +ountries t%at

pursue re$olutionary +a'pains of inustrial

nationaliBation an state-run prou+tion %as been 'ostly

neati$e

5 ase on epenen+y t%eory +ountries +oul pursue a poli+y

of a4tar70 or in*arly ire+te e$elop'ent D trae *

ot%er e$elopin +ountries



I#. NE!C'%SSIC%'C!"NTEE#!'"TI!N



I#. NE!C'%SSIC%'

C!"NTEE#!'"TI!N

Neoclassical co4nterrrevol4tion- "%allenes statist 'oels in fa$or of free 'arets publi+

+%oi+e D 'aret-frienly approa+%es

- &e$elope nations: fa$ore supply-sie 'a+roe+ono'i+

poli+ies rational e/pe+tations t%eories an pri$atiBation of

publi+ +orporations

- &e$elopin +ountries: freer 'arets an is'antlin ofpubli+ o*ners%ip statist plannin an o$ern'ent

reulation



I#. NE!C'%SSIC%'

C!"NTEE#!'"TI!N

Contet- 'ere in t%e 1MN0s urin politi+al as+enan+y of

+onser$ati$e o$ern'ents of #S "anaa ritain an @ester'any

- ?eo+lassi+ists on t%e boar of po*erful international

aen+ies @orl an an Gnternational onetary ,un as

influen+e of Gnternational >abor =raniBation #nite?ations &e$elop'ent Prora' an #nite ?ations

"onferen+e on rae an &e$elop'ent eroe



I#. NE!C'%SSIC%'

C!"NTEE#!'"TI!N

%r24ment- #nere$elop'ent resulte fro' poor resour+e allo+ation

be+ause of in+orre+t pri+in poli+ies an state inter$ention(+orruption ineffi+ien+y la+ of in+enti$es et+6)

- State inter$ention slo*s e+ono'i+ ro*t%

- ?eoliberals: e+ono'i+ effi+ien+y an ro*t% *ill be

sti'ulate by free 'arets pri$atiBin state enterprisese/port e/pansion an eli'inatin o$ern'ent reulation

an pri+e istortions

- Allo* 'ai+ of t%e 'aretpla+e an in$isible %an to

uie resour+e allo+ation an sti'ulate e+ono'i+ e$8t



I#. NE!C'%SSIC%'

C!"NTEE#!'"TI!N

3 component approaches

1. ree5mar7et approach 5 'arets alone are effi+ientH

+o'petition is effe+ti$e te+%noloy an infor'ationfreely a$ailable an +ostlessH o$8t is +ounterprou+ti$e

. (4;lic choice approach 5 ne* politi+al e+ono'y

approa+%H o$ern'ents o not%in ri%t be+ause of

selfis% interestsH 'isallo+ation of resour+es3. )ar7et5friendl0 approach B i'perfe+tions in e+ono'y

an nee o$8t for 'aret-frienly inter$entions (so+ial

ser$i+es an +li'ate for pri$ate enterprise)H a++eptan+e

of 'aret failures



I#. NE!C'%SSIC%'

C!"NTEE#!'"TI!N

Traditional Neoclassical Growth Theor0

'i;eraliation B openin up of 'arets ra* in$est'ent

an in+rease rate of +apital a++u'ulation

Solow neoclassical 2rowth model 5 e+ono'ies to

+on$ere to sa'e in+o'e le$el if sa'e rates of sa$ins

epre+iation labor for+e an prou+ti$ity ro*t%6

So4rce of o4tp4t 2rowth8 labor Euantity an Eualityin+rease in +apital an te+%noloy i'pro$e'ent

!penness B en+ouraes a++ess to forein prou+tion

ieas te+%noloi+al proress



I#. NE!C'%SSIC%'

C!"NTEE#!'"TI!N

C!NC'"SI!NS

9 ,iner-pointin bet*een epenen+e t%eorists ('any

fro' e$elopin +ountries seein unere$elop'ent

as e/ternally inu+e p%eno'enon) an neo+lassi+al

re$isionists ('ost fro' @estern e+ono'ies bla'e

o$8t inter$ention an ba e+ono'i+ poli+ies)

9 aret pri+e allo+ation 'ay o a better 7ob t%an stateinter$ention but e$elopin e+ono'ies %a$e $ery

ifferent stru+tures:

9 "o'petiti$e free 'arets enerally o not e/ist infor'ation is

li'ite 'arets fra'ente et+6



I#. NE!C'%SSIC%'

C!"NTEE#!'"TI!N

C!NC'"SI!NS

9 Gn$isible %an often lifts t%ose alreay *ell-off failin to

offer opportunities for up*ar 'obility of t%e 'a7ority

9 >essons fro' supply-an-e'an analysis to arri$e at

+orre+t pri+es

9 Gn an en$iron'ent of *iesprea institutional riiity

an se$ere so+ioe+ono'i+ ineEuality both markets

and governments *ill typi+ally fail6



EC!NCI'INGDIEENCES



EC!NCI'ING DIEENCES

9 a+% approa+% %as strent%s an *eanesses

9 "ontro$ersies I ieoloi+al t%eoreti+al or e'piri+al I

'aes t%e stuy of e+ono'i+ e$elop'ent +%allenin

9 $ol$in patterns of insi%ts an unerstanins

9 "=?S?S#S Sinifi+an+e fro' ea+% approa+%:

- 'inear sta2es8 +ru+ial role of sa$ins an in$est'ent

- Two5sector model8 transfer of resour+es fro' lo* to %i%-

prou+ti$ity a+ti$ities linaes bet*een traitional D 'oern

- Dependence theor08 i'portan+e of *orl e+ono'y an

e+isions of e$elope *orl affe+tin e$elopin e+ono'ies

- Neoclassical8 effi+ient prou+tion proper pri+e syste's

classic theories econ growth

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