ROSTOWS MODEL OF DEVELOPMENT W W Rostow was

ROSTOW’S MODEL OF DEVELOPMENT W. W. Rostow was an American economist who proposed five (5) stages of economic growth.

History of The Rostow Model One of the first models to account for economic growth, and probably still the simplest was put forward by W. W. Rostow in 1960. He suggested that all the countries in his study had the potential to break the cycle of poverty and develop through five linear stages.

The Stages of Economic Development This is a linear theory of development. Economies can be divided into primary secondary and tertiary sectors. The history of developed countries suggests a common pattern of structural change:

Changes in employment structure based on the Rostow Model

What was the model ? Every society had to pass through these five stages, if they were in transition to modernity or development. What is development?

Rostow’s Model of Economic Growth

STAGE 1 Traditional Society The economy is dominated by subsistence activity. Output is consumed by producers rather than traded. Any kind of trading is done by bartering. Agriculture is the most important industry thus making production labour intensive.

Stage 1 Traditional Society subsistence economic activity i. e. output is consumed by producers rather than traded, but is consumed by those who produce it; trade by barter where goods are exchanged they are 'swapped'; Agriculture is the most important industry and production is labour intensive, using only limited quantities of capital.

STAGE 2 Pre-conditions of modernization n Industrialization would have just began. n An emergence of transport and infrastructure to support trade. n Savings and investment grew This resulted in entrepreneurs emerging and external trading.

Stage 2 Transitional Stage (the preconditions for takeoff) Surpluses for trading emerge supported by an emerging transport and infrastructure. Savings and investment grow. Entrepreneurs emerge.

STAGE 3 n Take Off Stage Industrialization increased. Workers switched from the agricultural sector to the manufacturing sector. Economic Transitions Evolution of new political and social institutions to support industrialization. Generates increasing incomes and therefore able to sustain more investment.

Stage 3 Take Off Industrialization increases, with workers switching form the land to manufacturing. Growth is concentrated in a few regions of the country and in one or two industries. New political and social institutions are evolve to support industrialization.

STAGE 4 Drive to Maturity n The economy begins to diversify into new areas. n Technological innovation a diverse range of investment opportunities.

The economy begins to produce a wider range of goods and services. Less reliance on imports. Stage 4 Drive to Maturity : Growth is now diverse supported by technological innovation. This diversity leads to greatly reduced rates of poverty and rising standards of livivng, as the society no longer needs to sacrifice its comfort in order to strengthen certain sectors.

STAGE 5 High Mass Consumption n Economy is geared towards mass consumption. n The service sector becomes increasingly dominant. n

Stage 5 High Mass Consumption The age of high refers to the period of contemporary comfort afforded many western nations, wherein consumers concentrate on durable goods, and hardly remember the subsistence concerns of previous stages mass consumption

Failures of the Rostow Model Rostow's model is limited. The determinants of a country's stage of economic development are usually seen in broader terms i. e. dependent on: The quality and quantity of resources, a country's technologies, a countries institutional structures e. g. law of contract.

n Rostow's model explains the development experience of Western countries, well. However, Rostow does not explain the experience of countries with different cultures and traditions e. g. Sub Sahara countries which have experienced little economic development.

n The Rostow model assumes incorrectly that all countries start off at the same level. n It predicts to short a timescale between the beginning of growth and the time when a country becomes self-sustaining. It over emphasizes the effect of the learning curve i. e. the time taken for a country to develop diminishes as countries learn from others that are developed.

§ Its generalized nature makes it somewhat limited. § It does not set down the detailed nature of the preconditions for growth. § In reality policy makers are unable to clearly identify stages as they merge together

Strengths of the Model According to a report on Human Development : n Our economic self-interest calls for rapid development of the rest of the world: our export markets will thereby grow and there will no longer be the lure of low wages to our jobs. n A richer world is likely to be a more peaceful world.

§ Savings and capital formation (accumulation) are central to the process of growth hence development. The key to development is to mobilize savings to generate the investment to set in motion self generating economic growth.

Development can stall at stage 3 for lack of savings – 15 -20% of GDP required. If the domestic Savings rate is 5%, then international aid/loan must total 10 -15% in order to plug the ‘savings gap’. Resultant investment means a move to stage 4 Drive to Maturity and self-generating economic