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Economic Development. Economic development is is.

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Presentation on theme: "Economic Development. Economic development is is."— Presentation transcript:

1 Economic Development

2 Economic development is is

3 the development of the economic wealth of a country. It is reflected in the well-being of people.

4 It also implies a change in the technological and institutional organization technological and institutional organization of production as well as in the distributive pattern of income.

5 Economic Growth and Economic development are two different terms.

6 Economic Growth is an increase in a country’s GNP. It is reflected in the growth of the country's output of goods and services.

7 Economic development implies a change in the socio-economic structure of a country. It is reflected in a decline in agriculture and a continuous increase in industry, trade, banking, constructions and services.

8 CHARACTERISTICS OF DEVELOPMENT  Industrialization.  Technology.  Human Resource(skills, qualifications…)  Natural Resources.  Education and Literacy

9 CHARACTERISTICS OF UNDERDEVELOPMENT.  Poverty.  A High Percentage of the Population engaged in Agriculture.  The use of old age production processes.  Unemployment.  Illeteracy.  A High rate of Import  A Low rate of Export .

10 Rostow’s Stages of Economic Development In 1960, the American Economic and Historian, WW Rostow suggested that countries passed through five stages of economic development.

11 Stage 1 Traditional Society Output is consumed rather than traded. Output is consumed rather than traded. Trade is carried out by barter. Agriculture is the most important industry. Low capital. Traditional methods of production. Traditional methods of production.

12 Stage 2 Transitional Stage (the preconditions for takeoff) An Increase in specialisation. An emergence of transport infrastructure to facilitate trade. An increase in savings, capital and investment.

13 Stage 3 Take Off An increase in Industrialisation. Workers switch from the agricultural sector to the manufacturing one. An increase in investment and incomes which generate more savings to finance further investment.

14 Stage 4 Drive to Maturity A diversified Economy. A diversified Economy. Technological innovation leading to great investment opportunities. Production of a wide range of goods and services. Production of a wide range of goods and services. A less reliance on imports. A less reliance on imports.

15 Stage 5 High Mass Consumption A high mass consumption. The service sector dominates the economy.

16 Limitations of Rostow’s Theory Many economists argue that Rostows's model is too general and limited. It does not set down the pre-conditions for growth and the stages are not clearly identified. It does not set down the pre-conditions for growth and the stages are not clearly identified. Thus, Thus, it is not very helpful for the understanding of Economic Development. Perhaps its importance is to highlight the need for investment to the emergence of the economy of any country. Perhaps its importance is to highlight the need for investment to the emergence of the economy of any country.

17 Other Theories of Development

18 Bruno Hilderbrand theory of development The process of development starts with the evolution of the means of exchange from: The process of development starts with the evolution of the means of exchange from:  BARTER to  MONEY to  CREDIT

19 KARL BUCHER theory on ECONOMIC DEVELOPMENT The expansion of the economy starts from: HOME to TOWN to NATION

20 GENERAL THEORIES OF DEVELOPMENT AND UNDERDEVELOPMENT GENERAL THEORIES OF DEVELOPMENT AND UNDERDEVELOPMENT

21 1- The Viscious Circle. According to this theory the causes of underdevelopment are interconnected so they form a viscious circle. Low Income leads to Low Saving. Low Saving leads to Low Investment. Low Investment leads to Low Productivity. Low Productivity leads to Low Income.

22 2- Dualistic Economies This theory states that People from underdeveloped regions are not motivated towards work and do not respond to monetary incentives. This leads to the existence of a system of dual economies.

23 This means that there are two sectors in the economy.   The first is in the hands of foreigners. It is effecient and well managed.   The second is run by the people of the country. It is traditional and ineffecient.

24 3-The Classical Theory The founder of this theory was Adam Smith. He claimed that development goes through a process. Division of Labour increases Productivity. Productivity increases National Income. The increase in National Income leads to an expansion of the market. The expansion of the market leads to innovation and growth.

25 4- Lump-Sum Capital and Vent for Surpluses This theory suggests that the small size of the market is the major cause of underdevelopment.

26 Thus, large sums of capital are needed to build up the infrastructure to create new markets where economies can take place and innovations and competition are encouraged.


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