2. 1 Research on Immigration and Integration in the Metropolis www.riim.metropolis.net

3. 2 Lecture 4 Development Theories: A way to Organize our Ideas or an Ideology ?

4. 3 Questions for Theory to Answer 1. What do you want a theory of development to explain ? –Income per capita, social stability,equality 2. Why do some countries grow and then decline? –Theory must explain both directions 3. Why do some poor countries 'take-off' and continue to grow?

5. 4 More Questions to Ponder 4. Why do some poor countries remain in a low level trap? –Trap defined as constant Yp 5. What arguments should be included in development theory?

6. 5 More Questions to Ponder a. Population growth: does it hinder or accelerate growth? b. Capital accumulation: –How do you accumulate when you are already poor? c. Technical Change: i. Where do you access technical change if you are already poor? – Via trade or indigenous adaptation ? ii. What does Canada's historical experience with the wheat and the reaper tell us about technical change and trade ?.

7. 6 Questions for you to answer 6. Find an example of a poor country which has – a. Taken off in last 20 years – b. Remained stagnant for last twenty years – c. Grew and then declined in last twenty years 7. How did your country of choice do with respect to the categories a to c and why ?

8. 7 Lecture 5: Theories A. Linear-Stages Theory (1950s and early 1960s) 1. It views economic development as a series of successive stages of economic growth through which every nation must go through. 2. It emphasizes that more investment leads to more growth. 3. It can be described by an economic mechanism known as the Harrod-Domar Growth model.

9. 8 The Harrod -Domar Growth Model –1. Rate of GNP growth is a function of national savings ratio (s) and rate of national capital-output ratio (k). GNP growth is positively related to the savings ratio and negatively related to the capital-output ratio. –2. It could explain the massive transfers of capital and technical assistance from developed to less developed nations.

10. 9 More Harrod -Domar Growth Model 3. Is investment a sufficient condition for economic growth? –No. –It is necessary but not sufficient condition for economic growth. Necessary: one of many ingredients Sufficient; minimum set required to grow

11. 10 II. Structural- Change Theory 1. It emphasizes on the mechanism by which underdeveloped economies alter their domestic economic structures from a traditional subsistence agriculture to a more urbanized, industrially diversufued economy. 2. It employs tools of neoclassical price and resource allocation theory.

12. 11 Lewis Two-Sector Model i. It became the general theory of the development process in surplus-labor Third World nations during the 1960s and early 1970s. ii. It focuses on the process of labor transfer from the traditional economy to the urbanized, industrial sector and the growth of output and employment in the high-productivity sector

13. 12 Assumptions i. Marginal product of labor is zero (surplus-labor). – This implies that labor can be removed from the agricultural sector without any loss of output in that sector. ii. Rural supply of labor to industrial sector is perfectly elastic. iii. Full employment in the urban sector.

14. 13 More Assumptions iv. Constant urban wage- premium over a fixed average subsistence wage. v. Capitalists reinvest all profits. vi. Rate of labor transfer and job creation is proportional to the rate of capital accumulation.

15. 14 Agricultural Sector

16. 15 Industrial Sector

17. 16 Conclusions for Lewis Model i. Employment growth and labor transfer is induced by output expansion in which the speed of expansion depends on the rate of industrial investment and capital accumulation in the industrial sector. ii. The self-sustaining growth and employment expansion process continues until all surplus labor is exhausted.

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