Rostow s theory
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Rostow's model outlines 5 stages of economic growth: 1. Traditional society dominated by agriculture and family/caste systems with obsolete techniques. 2. Preconditions for take-off including a spread of infrastructure and technical revolution in agriculture. 3. Take-off period of 20-30 years where industries generate savings/investment and self-sustaining growth occurs. 4. Drive to maturity lasting 40+ years where modern technology is applied widely and economic development becomes automatic. 5. Age of high mass consumption where attention shifts to demand/consumption and standards of living increase substantially.
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Rostow s theory
- 1. Rostow`s Stages of Economic growth Many economists are of the opinion that as a country passes through different stages during the course of its development. Hence it is possible to split the process of devpt. Into certain specific stages. w.W. Rostow in his ‘Stages of Economic Growth’,(1960) has split the process of economic development into five stages:- 1.The traditional society A traditional society is” one whose structure is developed within limited production functions based on pre-Newtonian science and technology and pre-Newtonian attitudes towards physical world.”
- 2. Features 1.Dominance of Agriculture.---But agri. Was backward. 2 Dominance of Family and caste system.--- Individual virtues were ignored. 3. Political Power. Landlords control the political power. 4. Techniques were obsolete. 5The law of diminishing returns prevailed due to the use of obsolete methods, 6. Unproductive exp…..like building of memorials, expensive funerals etc. 7. Application of Malthusian theory.---both the birth and death rates were high. 8. Ignorance about development avenues. 9. Economicactivities….usually traditional using simple tools and equipments.
- 3. 2. PRE—CONDITIONS FOR TAKE-OFF In this stage there are economic as well as political, social, cultural…etc factors. The duration of this period is roughly around 100 years. As pre-conditions for take –off the following changes must occur There should be spread of social-overhead capital. There should be technical revolution in agri. Foreign trade should be expanded.
- 4. FEATURES 1.Importance to non agri.sectors. the sectors like industry, transport, trade etc. are in the process of devpt. 2. Expansion of social overhead capital like rail, roads,hospitals etc. 3. New ideology- dogmatic views are replaced by new ideas. 4.Technological advancement due to which there is increased capital formation. 5.Exports and imports.—Finished goods capital goods and machinery are imported but raw materials, minerals etc are exported. 6. rate of savings and investments are likely to be very low. 7.Stress on development of transport which leads to expansion of transport. 8.there is the devpt. Of infrastructure as govts devote more revenue to the devept. Different infrastructure facilities. 9. Birth rate starts declining. 10. End of conservatism.-the economy is driven on the path of modernization.
- 5. 3.The take-off. This period lasts for about 20 to 30 years. Eco . devpt. Process is automatic and the economy becomes self- reliant. New industries are set up which starts generating savings and investment level goes up. Conditions for …… A rise in the rate of productive investment from about 5% to over 10% of N.I. The devpt. Of one or more substantial manufacturing sectors with a high rate of growth. 3. The existence of a political, social and institutional framework which exploits the impulses to expansion in modern sector
- 6. Characteristics…… 1.Plough back of profits.-The producers resort to plough back of profits. 2.Use of savings for productive channels. 3.Development of financial institutions….They mobilize the scattered savings and channelise them into productive areas. 4.Raises dd. for domestic products. This happens particularly when income is redistributed among those people who either spend or invest and not hoard. 5.External Resources.-There will be huge flow of foreign capital to developing countries which will enable them to expand social overheads like roads, railway, irrigations etc
- 7. 6.Technological Advancement.-modern techniques are widely adopted during this stage. 7.Foreign trade.—raw-materials and minerals are exported and the revenue so received will be spent on the import of plant and equipment. 8.Govt. policy.- It is conducive to economic growth. Investment is promoted and new entrepreneurs are encouraged. 9.Period is short say two or three decades only. 10.Economic revolution.-An economy holds self sustaining and self- generating economic growth
- 8. THE DRIVE TO MATURITY It is a period when a society has effectively applied the range of modern technology to the bulk of its resources. It may last over four decades. During this period the rates of saving and investment reach such a magnitude that eco. devpt. Becomes automatic.P.C.I. increases----New leading sectors are created….Rural pop. declines….sand urban pop. Increases. Foreign trade undergoes a radical change…Workforce become highly skilled…Real wage roses…Labourforce become more organized.
- 9. Features 1.On an average the rate of investment is between 10 to 20 percent…. N.I.increases so also pop. But increase in N.I. is more than increase in pop. 2. A lot of improvement in the conditions of labourers and they become much better off. Dependence on agri. falls. 3. P.C.I. and living standards of the people improve. 4. New political and social institutions come up. 5. A new class of entrepreneurs also come up for efficient management.
- 10. 6. New tech… is introduced. 7. International trade improves. 8. Foreign dependence is reduced. 9. Workers become highly skilled. 10. Modern techniques become widespread. 11. The economy becomes a nation of significance by other nations. 12. Exports are encouraged and imports are discouraged. 13. This stage comes after 40-60 years of take-off stage
- 11. THE AGE OF HIGH MASS CONSUMPTION ORSTAGE OF SELF SUSTAINED GROWTH AND MASS CONSUMPTION In this stage the leading sectors of the economy produce durable consumer goods and services like automobiles T.Vs.A.C etc. The attention of the economy shifts from supply to demand and from problems of production to problems of consumption.
- 12. FEATURES 1.There is enormous increase in N.I and P.C.I. 2.The consumption level of people and the standard of people in general go up. 3.The rate of investment goes up to the tune of 20% or more. 4.There is substantial improvement in the employment opportunities.. 5. The labourers become highly organized. 6. The foundation of a welfare state is laid down. 7. Consumers’ sovereignity increases. 8. More migration from rural to urban areas. 9. More financial security prevails. 10. Consumption of more comforts and luxuries.