CHAPTER 4: THEORIES OF DEVELOPMENT
CHAPTER OUTLINES:
Common theories of Development are:-
• Rostow’s Growth model
• Core-periphery model
• Modernization theory
• Dependency theory
• Theory of Post Modernism
• New (endogenous) Growth
• Balanced vs unbalanced growth
• Coordination Failure: The O-Ring Theory of
Economic Development
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What is theory??
• Theory is defined as a set of logical propositions about how some
aspect of the real world is structured, or the way in which it operates.
• Development theories may be regarded as sets of seemingly logical
propositions, which aim to explain how development has occurred in
the past, and/or how it should occur in the future
• It is also a collection of theories about how desirable change in
society is best achieved
All development theories are trying to explain:
How dev.t does or does not occur?
Why development does or does not occur?
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Rostows model (1960)
Rostow in his book “the stage of economic growth: A non
communist Manifesto” discussed development as a linear
historical process
This model is also called uni-linear model, which is coined
by Walt Rostow, 1960.
It attempt to show how a country’s economy and society
progress through a series of stages, and is firmly based on
the Euro-American experience
The key element in Rostow’s thinking was the process of
capital formation, represented by five stages through which
all countries pass in the process of economic growth.
Rostows model (1960)
He identified five stages through which developing countries had
to pass to reach an advanced economy status: these are:-
1. Traditional society,
2. Preconditions for take-off,
3. Take-off,
4. Drive to maturity,
5. Age of high mass consumption
– Characterized by primitive technology, hierarchical social structures,
production and trade based on custom and barter
• With improved technology and transport, increased trade and investment,
economically based elites and more centralized national states gradually emerged.
• Economic progress was assisted by education, entrepreneurship and institutions
capable of mobilizing capital.
– Take-off’ is characterized by rapid economic growth, more
sophisticated technology and considerable investment,
particularly in manufacturing industry
STAGE 5: Age of high mass consumption
In goal terms, ‘development’ was conceived of as a state
where the mass of the population could afford to spend large
amounts on consumer products, the economy was largely non-
agricultural and very much urban-based
The Core-Periphery model
It was developed in 1963 by John Friedmann
It describes spatially how economic, political, and cultural
authority is spread out in core and periphery regions.
The core-periphery model works on many scales, from towns and
cities to a global scale.
Much like how the core areas are affected by changes in
dynamics, the peripheral areas are also affected by these changes.
For example, a large majority of the people who are moving into
the core area are young adults. The peripheral areas are therefore
losing young, potentially educated, adults.
In this theory, Core Countries (e.g., Europe) form an economic
core around which the rest of the world developed.
The Periphery Countries typically were controlled by the Core
Countries. The periphery feeds materials, natural resources and
labor to the core
Areas in the Core have:
Higher Wages
Healthcare
More technologies
Sufficient food, water, shelter, supplies, etc.
Scientific Innovations
Areas in the periphery have:
Lower Wages
Less technological advancements
Reduced access to healthcare
Sometimes insufficient food, water, shelter,
etc.
Modernization theories
They see advanced capitalist societies as models for all developing
nations
all societies go through the same stages to become developed
modernization theories specifically addressed the issue of
developing countries & development
They accepted the structure of relationships between the rich and
poor countries and
attempted to analyze the ways in which the poor could become
rich
In this sense modernization theories were problem solving:
how could economies progress from being traditional and poor to
being modern and rich?
The transition from the limited economic relations of traditional
societies to the innovative and complex innovative associations
depended on a change of values, attitudes and norms of people
That is development depended on primitive values being replaced
by modern one
Modernization could also seen as the increasing significance of the
economic as opposed to social, cultural, ethnic, or religious
distinctions.
Limitation of Modernization theories
Modernization theories faced considerable criticized
They were criticized for not really defining the traditional except in
relation to the modern
These theories were euro-centric most early development theories
saw development as a linear process
Neo classical theorists (1980s &1990s )
It focused on the beneficial role of free markets, open economies
and the privatization of public enterprises.
It suggested the failure of some economies to develop is a result of
too much government intervention and regulation.
Blames gov.t intervention for economic problems & developing
country debt crisis in 1980s
Neoclassical counter revolution is like “anti” dependency theory
They suggested that economic growth would be achieved if the
market were left to its own devices.
For neo-classical or neo-liberal theorists, the route to greater
economic growth was through reducing state intervention and letting
the market set prices and wages.
The experiences of the East Asian nations from the 1960s to the
1990s was regarded as an example of how neo-liberal policies could
lead to development.
Following the success of the Japanese economy in the post-war
period, the newly industrializing countries or economies of Hong
Kong, Singapore, Taiwan and South Korea experienced rapid
economic growth based largely on labour-intensive manufacturing
industries.
In the 1980s this trajectory was also taken by Indonesia, Thailand
and Malaysia, as well as China and Vietnam that were starting to
move away from a state-controlled economy
In 1993 the World Bank published book which highlight
the ways of economic and social dev.t which had been
achieved by the East Asian nations by following a few key
neo-liberal tenets; notably,
opening up the economy to foreign investment and trade;
limited role of the state in the national economy;
investment in human capital, especially education
In 1997 this model of neo-liberal economic dev.t collapsed
in what was termed the ‘Asian Crisis’.
The trigger for the economic crisis was the devaluation of
the baht, the Thai currency.
The crisis was largely financial, in that the withdrawal of
large amounts of foreign capital from the region meant that
for many countries, the stability of their economies was
severely threatened.
Weakness of free market
Free market reforms can be hard to achieve politically
Free markets may not work well in poor countries: information
problems, externalities, increasing returns, bad legal
systems/property rights
Governments may be needed for education, health, infrastructure -
but often budgets had to be cut
Free markets can leave out the poorest in society
Faced trade barriers in world markets preventing specialization in
their comparative advantage sectors
Dependency theory (1970s)
In development studies dependency speaks to a situation in which a
particular country or region relies on another for support, “survival”
and growth.
It viewed underdevelopment in terms of
international and domestic power relationships,
Institutional and structural economic rigidity (inflexible),
the resulting proliferation of dual economies and dual societies
both within and among the nations of the world.
Failure to develop is due to exploitive external & internal forces
Dependence theories tended to emphasize external and internal
institutional and political constraints on economic development
Emphasis was placed on the need for major new policies to:
to eradicate poverty,
to provide more diversified employment opportunities, and
to reduce income inequalities.
Problems with dependency theories
• Often vague, logical connections unclear
• Put blame for poverty on “outsiders”
• Evidence suggest closing off countries to outside influence and
large role of government are bad for development (at least under
some circumstances)
• China, India very closed for many years, doing badly.
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Theory of Post Modernism
Postmodernism literally means 'after modernism'.
Postmodernism is a way of thinking about:
Culture, art, music, film, architecture
History & politics
The period of postmodernism's dominance begins early in the Cold
War and continues through to the present.
• Modernism is a tendency rooted in the idea that the "traditional"
forms of art, literature, religious faith, social organization and
daily life had become outdated; therefore it was essential to
bend them aside.
• Modernism encouraged the re-examination of every aspect of
existence with the goal of finding that which was "holding back"
progress, and replacing it with new, and therefore better, ways of
reaching the same end.
• unlike Modernism, Postmodernism starts from the assumption
that outstanding ideals are impossible.
• Postmodernism is associated with belief and a focus on ideology
in the maintenance of economic and political power.
• Fundamental d/c b/n modernism and postmodernism
o modernist thinking is about search of abstract truth of life
o postmodernist thinkers believe that there is no universal
truth.
Central message of postmodernism essentially states that there is
no objective, single truth independent of humans’ capacity to
interpret & explain.
Postmodernism is largely a reaction to the assumed certainty of
scientific, or objective, efforts to explain reality.
Postmodernism Rejects Biblical Truth
Christians believe God is the source of absolute truth. Jesus
Christ proclaimed himself to be the Truth: “I am the way and
the truth and the life.… but they dismiss his statement that he is
the only way to heaven.
Criticisms of postmodernism
it lacks coherence and is hostile to the notion of absolutes, such
as truth.
Postmodern philosophy is also a frequent subject of criticism for
conservatism and resistance to reliable knowledge.
They are vague, create confusion, and provoke unnecessary
ideological tension.
It argue that improvements in innovation, knowledge, and human
capital lead to increased productivity, positively affecting the
economic outlook.
It argues that improvements in productivity can be tied directly to
faster innovation and more investments in human capital from
governments and private sector institutions.
Thus, it claim that economic growth is primarily the result of
internal forces, rather than external ones.
Endogenous growth theories identified two factors for growth:
1. Technological progress (provide better quality machine &
increased technical know how)
2. Investment in human capital
Limitation of endogenous growth theory
The theory has been accused of being based on assumptions that
cannot be accurately measured.
Next, the major disadvantage of economic growth is the inflation
effect. Economic growth will cause aggregate demand to increase.
If aggregate demand increases faster than the increases in
aggregate supply, then there will be an excess demand but a
shortage in supply in the economy.
Theory of Balanced and Unbalanced Growth
There are two theories concerning strategy of economic
dev.t:
1. Theory of Balanced Growth
According to this theory economies should make
simultaneous investment in all sectors to achieve balance
growth.
Balance growth means that all sectors of economy should
grow simultaneously so as to keep a proper balance
between industry and agriculture and between production
for home consumption and production for exports.
Different industries were mutually interdependent, then
all of them should be developed simultaneously
ore than the
Balance among Different Sectors
Balance between Agriculture and Industries
Balance between Human and Physical Capital
Balance between Domestic Trade and ForeignTrade
Advantage of Theory of Balanced Growth
Better division of labor
Better use of capital
Rapid rate of development
Encouragement of private enterprises
Breaking of vicious circle of poverty
rows then se
Encouragement of international specialization
Criticism of Theory of Balanced Growth
This theory Criticized for:
• Unrealistic or ignores scarcity of resources
• Ignores the need of planning
• The same policy for developed & underdeveloped countries
• Not supported by history
• Ignores of factors of production
• Inflation
[Link] of Unbalanced Growth
According to this theory economies should create a situation of
unbalance by making large investment in anyone sector
The theory stresses the need for investment in strategic sectors of
the economy, rather than in the all sectors simultaneously.
Unbalanced growth is a situation in which the various sectors of a
given economy are not growing at a rate similar to one another
Specific sectors of the economy will be growing at a rapid rate,
while other sectors are either stagnant or experiencing a
significantly reduced rate of growth.
Coordination Failure: O-Ring Theory of Economic Dev.t
Michael Kremer formulated the O-ring theory in 1993.
In the O-ring theory, productivity is associated with the job rather
than with worker
Underdevelopment as a Coordination Failure
• Coordination failures occur when agents’ inability
to coordinate their actions leads to an outcome
that makes all agents worse off.
• Who are agents?
– Government institutions
– Private sectors
– Citizens
• This can occur when actions are complementary,
i.e., Actions taken by one agent reinforces
incentives for others to take similar action
End of Chapter four
Thank U!
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