Economic Growth & Development - Rostows Grow Theory

ECONOMIC GROWTH AND ECONOMIC DEVELOPMENT
Societies are dynamic. No society is static. As individual needs change, so

does each society strive to meet such needs. Growth and development are
therefore expressions of the changes in human society. The development
of production and its forces are practical expressions of the function of
growth and development.
Economic Growth
Economic Growth is the quantitative increase or expansion of production or

output of an economy over a given period. It can also be said to be the
sum total of production and wealth in an economy over a given period.
Economic growth is measured by the increase in a country’s total output or

real Gross Domestic Product (GDP) or Gross National Product (GNP). GDP
is the monetary value of goods and services a country produces within a
given period. Traditionally, GDP has been considered as the best indicator
of a country’s economic growth because it accounts for the country’s entire
economic output, including goods and services sold both locally and
internationally.
Another important measure in Economic Growth is Per Capita Income (pci),

which shows the amount of money earned by individuals in a nation. Per
capita income is used to determine the average per-person income in a
society and to evaluate the standard of living and quality of life of the
population. It is usually calculated by dividing the country's GDP, which is
the total value of goods and services produced by the country in a given
year by the population (PCI = GDP/Pop.).
A number of factors can influence a country’s economic growth. They

include:
1. Natural Resources – The discovery of more natural resources like

oil, or mineral deposits may boost economic growth as this shifts or
increases the country’s Production Possibility Curve. Other resources
include land, water, forests, natural gas etc. It is important to point
1
out that some nations are more endowed than others, this also
impacts on their economic growth.
2. Capital Resources – Nations that have large stock of capital and
high savings rates usually grow faster than others. Little wonder why
several developing countries are not doing well in terms of growth
considering their high debt profile.
3. Advancement in technology – Improvement in technology
positively affects economic growth. The application of advanced
technology usually results in increased productivity of labor leading to
economic growth.
4. Population and Human Capital - A growing population means
there is an increase in the availability of workers or employees, which
translates to a higher workforce. A skilled population also contributes
to growth. It is equally a large market. Although the downside of a
large population is that it could lead to high unemployment.
5. Participation in the world economic system – this enables
nations to export and import
6. Structure of the Economy – how the production system is
distributed especially among various sectors contributes to growth.
This results from adequate planning. On the other hand, there is
minimal growth once a country’s emphasis is on agriculture and
primary activities.
7. Stable Political System – Political instability usually drives away
investment.
Economic Development
Economic Development is the effect of expansion of a country’s output on

quality of life especially in terms of improvements on food and water
supplies, energy consumption, housing, healthcare and life expectancy,
transportation, education and recreation. It can also be defined as the
promotion of more intensive and advanced economic activity within an
economy or society. Economic Development primarily looks at the changes
in a country’s economy in terms of both qualitative and quantitative
improvements.
Oftentimes, this could involve institutional and ideological changes, which

enables the people and the nation to benefit from growth and expansion.
2
Development in fact, is the mobilization and management of the resources
of a nation (natural and human) for the progress of the society and its
citizens.
Several factors affect economic development including:
a. Improvements in Infrastructure – Improvements in

infrastructure like transport and communication could create new
opportunities for development.
b. Education. Levels and standards of education have a significant
influence on labour productivity. Without basic literacy and
numeracy, it is difficult for an economy to develop from manual
labour to new higher-tech industries in the service sector.
c. Investment. Developing countries that can attract investment
usually witness rapid development due to higher levels of capital and
benefits.
d. Savings/Capital High levels of savings and capital are seen as key
factors in determining economic development. Higher savings
enables a virtuous circle of increased investment.
e. Political Stability / Law and Order. Political stability and the
protection of private property is ranked as the most important factor
for encouraging firms to invest in developing economies. Any sign of
instability increases the economic and personal risk for investment. In
fact, the biggest block to development is prolonged civil
unrest/military conflict as this causes investment to dry up and
resources to be wasted in unproductive means.
f. Macroeconomic stability. Macroeconomic stability encourages
investment and development. This involves low rates of inflation and
exchange rate stability. Rapid devaluation can cause capital flight and
a decline in growth.
Economic Development can only occur within a sustained increase in living

standards, which implies increased per capita income, better education and
health as well as environmental protection.
ROSTOW’S THEORY OF GROWTH
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In 1960, an American Economic Historian and political theorist, Walt
Whitman Rostow came up with an essay in which he argued that countries
usually passed through five stages, in order to develop and attain
economic growth. This represents the transition from underdevelopment to
development. Rostow’s five stages of growth are:
i. Traditional Society
The economy in the traditional society is dominated by subsistence activity,

where output is consumed by producers and not traded. Also, trade is
mainly by barter, agriculture is the most important economic activity and
production is labour intensive using limited capital. Similarly, resource
allocation is determined by traditional methods of production; social
structure is hierarchical; while family and clan connections are dominant.
ii. Transitional Stage (Precondition for take off)
In the transitional stage, the economy is characterized by increased

specialization, which generates surpluses for trading. There is also the
emergence of transport infrastructure to support trade. Furthermore,
entrepreneurs emerge as savings and increments grow. External trade
begins to occur, though concentrating mainly on primary products. This is
indicated by Britain and Western Europe from the end of the 15 th century,
when medieval age ended and modern age began. The transition in Europe
was occasioned by four forces: New learning (Renaissance), New
Monarchy, New World and New Religion or Reformation. These factors led
to increased Reasoning and Skepticism in place of faith and authority,
which brought an end to feudalism and led to rise of nation states. It also
led to new inventions.
iii. Take off Stage
The take off stage is mainly characterized by increased industrialization

with workers switching from agriculture to manufacturing. However,
growth is concentrated in a few regions and a few industries. The level of
investment reaches over 10% of Gross National Product (GNP). There is
the evolution of new political and social institutions to support
industrialization as well as increased incomes and fresh savings to finance
4
further investments. The takeoff stage is usually a “great watershed in the
life of a society, when growth becomes its normal conditions…, forces of
modernization contend against the habits and institutions”. Conditions for
the takeoff include: rise in the rate of productive investment from about
5% or less to over 10% of national income or net national product;
development of one or more substantial manufacturing sectors with high
rate of growth and emergence of a political, social and institutional
framework that exploits the impulses to expansion in the modern sector
and gives to growth an outgoing character.
iv. Driving to Maturity
At this stage the economy begins to diversify. Technology innovation

begins to provide diverse range of investment opportunities as the
economy now produces wide range of goods and services even as there is
less reliance on imports.
This is usually a period of long sustained economic growth extending well

over four decades. New production techniques emerge as new leading
sectors are created. Rate of net investment is well over 10% of National
Income and the economy is able to withstand unexpected shocks.
Three conditions emerge at this stage: character of workforce changes as

it primarily becomes skilled and worker’s groups emerge; character of
entrepreneurship changes as polished and efficient managers takeover;
and there is the strive for new changes and progress.
v. Age of High Mass Production
At this stage the economy is geared towards mass production even as the
service sector becomes increasingly dominant. The economy again requires
high investments in capital as there is extensive use of automobiles,
durable consumer goods and household gadgets. This is where most first
world economies are at the moment. It is also the stage of realization of
Rostow’s model.
Again three conditions are noticeable at this stage. First, there is a national
policy to enhance power and influence beyond frontiers. Second, an effort
5
to realize a welfare state through a more equitable distribution of national
income through progressive taxation, increased social security and leisure
to the working force. And finally, a decision to create new commercial
centres and leading sectors like cheap automobiles, houses and
innumerable electrically operated household devices.
Limitations of Rostow’s Theory
Scholars have criticized Rostow’s’ Theory due to the following reasons:
a. Development economists argue that Rostow’s theory was primarily

aimed at explaining the experience of the developed western
economies and hardly justifies the experience of the less developed
countries, who seem to have different cultures and resources. The
generalized nature of the theory therefore limits its application;
b. It’s emphasis on savings as a necessary condition for growth limits

the importance of other economic variables in the growth process.
For instance, a country can achieve the savings target and still be
lacking in planning, education or perhaps not invest right or have
corrupt governments;
c. Many countries that are developing today did not seem to have relied
on the Rostowian model. Smaller countries especially in Asia, such as
Singapore, seem to have skipped a few of Rostow’s Stages of Growth
to attain their high growth stages. This shows that Rostows theory
does not have universal application.
Many scholars therefore conclude that whereas Rostow’s Growth Theory

explains the development experience of western countries, it does not
however explain the experience of countries with different cultures and
traditions e.g. sub Saharan African countries, which seem to have
experienced little economic growth over the years.

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ECONOMIC GROWTH AND ECONOMIC DEVELOPMENT

Societies are dynamic. No society is static. As individual needs change, so

Economic Growth is the quantitative increase or expansion of production or

Economic growth is measured by the increase in a country’s total output or

Another important measure in Economic Growth is Per Capita Income (pci),

A number of factors can influence a country’s economic growth. They

1. Natural Resources – The discovery of more natural resources like

Economic Development is the effect of expansion of a country’s output on

Oftentimes, this could involve institutional and ideological changes, which

Several factors affect economic development including:

a. Improvements in Infrastructure – Improvements in

Economic Development can only occur within a sustained increase in living

ROSTOW’S THEORY OF GROWTH

The economy in the traditional society is dominated by subsistence activity,

ii. Transitional Stage (Precondition for take off)

In the transitional stage, the economy is characterized by increased

iii. Take off Stage

The take off stage is mainly characterized by increased industrialization

iv. Driving to Maturity

At this stage the economy begins to diversify. Technology innovation

This is usually a period of long sustained economic growth extending well

Three conditions emerge at this stage: character of workforce changes as

v. Age of High Mass Production

Limitations of Rostow’s Theory

Scholars have criticized Rostow’s’ Theory due to the following reasons:

a. Development economists argue that Rostow’s theory was primarily

b. It’s emphasis on savings as a necessary condition for growth limits

Many scholars therefore conclude that whereas Rostow’s Growth Theory

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