Development Models and Theories

Income and Demographic Change, 1980–2004 Fig. 9-19: Per capita GDP has increased more in MDCs than in LDCs during this period, while population growth and infant mortality have declined more rapidly in MDCs than in LDCs.

How can LDCs develop more rapidly? LDCs need to increase per capita GDP more rapidly and use the additional funds to make more rapid improvements in people’s social and economic conditions. LDCs chose one of two models to promote development 1.Emphasizes international trade 2.Advocates self-sufficiency

Development Through Self-Sufficiency Most popular approach for most of 20 th century – Used in India and China 1.Country would invest equally-sectors and region 2.Isolates businesses from international competition 3.Sets barriers to limit the number of foreign goods 4.Businesses are discouraged from producing goods to be exported

Development through International Trade A country can develop economically by concentrating scarce resources on expansion of its distinctive local industry. The income from these products would bring funds into the country that can be used to finance other development. Pioneering advocate for this approach was W.W. Rostow Rostow’s model was implemented in several countries during the 1960s

Examples of International Trade Approach Two groups of countries chose the international trade approach during the mid-twentieth century. – Arabian Peninsula – Four Asian Dragons

Modernization Theory 1940s-1960s Former colonies should follow the path taken by Western Europe and North America during the Industrial Revolution Modernization was made possible by 1.Building the physical infrastructure of transport, energy, and water systems 2.Building the social institutions needed for capitalism, such as currency, private property, taxes, banks, etc. The key to creating wealth were seen as mass production, specialization, and substitution to capital and inanimate energy for human labor. The World Bank, IMF and other agencies were created to facilitate investment and technology transfers.

Dependency Theory 1970s Core-Periphery Model – Industrialization begins in a single, strong core usually involved in secondary, tertiary and quaternary activities at the expense of the traditional periphery dominated by primary economic activities. Leads to neocolonialism – Previously colonized country has become politically independent but remains economically dependent on exporting the same commodities as it did during colonialism Uses capitalism and business globalization to influence a country

Financing Development Regardless of model used, LDCs need money to finance development International Monetary Fund (IMF) The World Bank – International Development Association – International Bank for Reconstruction and Development What is the theory behind borrowing money? What are the problems with loans?

Fair Trade A variation of the international trade model Fair Trade: products are made and traded according to standards that protect workers and small businesses in LDCs. Producer Standards Worker Standards