ECON-2220 Lecture Notes - Lecture 4: Subsistence Agriculture, Economic Mobility, Marshall Plan

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Study Guide 3: Classical Theories of Economic Growth and Development
After WWII
After WWII economists in the industrialized world did not have an economic
theory to analyze the process of economic growth of LAC with large agrarian
societies. What they had were two experiences:
In the past, model industrial nations were once underdeveloped
agrarian societies-->their own experience in transforming their
economies from poor agricultural subsistence societies into model
industrial giants had important lessons for the Backward countries
of Asia, Africa, and LAC.
The Marshall Plan injected massive amount of US financial and
technical assistance to European countries helping them to rebuild
and modernize their economies in a matter of years.
Classical theories of economic development
Linear Stages of Growth Model
Structural Change
Dependency School
Neoclassical free market approach
Rostow’s stages of growth
Transition was described in sequential steps or stages which all countries
should go through to achieve development.
Stages were not merely descriptive. They have inner logic and continuity.
They constitute, in the end, both a theory about economic growth and a
more general, if still highly partial, theory about modern history as a whole.
According to Rostow’s model, all advanced countries had to passed the stage
of takeoff into self-sustaining growth and the underdeveloped countries
that were still in either the traditional society or the pre conditions stage
had only to follow a certain set of rules of
Below is a detailed outline of Rostow's five stages:
Traditional society: characterized by subsistence agriculture or
hunting and gathering; almost wholly a "primary" sector economy
limited technology
A static or 'rigid' society: lack of class or individual economic
mobility, with stability prioritized and change seen negatively
Pre-conditions to "take-off": external demand for raw materials
initiates economic change; development of more productive,
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commercial agriculture and cash crops not consumed by producers
and/or largely exported widespread and enhanced investment in
changes to the physical environment to expand production (i.e.
irrigation, canals, ports)
increasing spread of technology and advances in existing technologies
changing social structure, with previous social equilibrium now in flux
individual social mobility begins
development of national identity and shared economic interests
development to take off in their turn into self-sustaining econ growth.
Take off: Urbanization increases, Industrialization proceeds,
Technological breakthrough occurs the "secondary" (goods-
producing) sector expands and ratio of secondary vs. primary sectors
in the economy shifts quickly towards secondary textiles and apparel
are usually the first "takeoff" industry, as happened in Great Britain's
classic "Industrial Revolution"
Drive to maturity: diversification of the industrial base; multiple
industries expand and new ones take root quickly manufacturing
shifts from investment-driven (capital goods) towards consumer
durables and domestic consumption rapid development of
transportation infrastructure
large-scale investment in social infrastructure (schools, universities,
hospitals, etc.)
Age of mass consumption: the industrial base dominates the
economy; the primary sector is of greatly diminished weight in
economy and society
widespread and normative consumption of high-value consumer
goods (e.g. automobiles), consumers typically (if not universally) have
disposable income beyond all basic needs for additional goods
Saving is the principal element to take off
Domestic or international
key to generate sufficient investment to accelerate economic growth
Harrod-Domar Growth Model (Roy Harrod - England 1939) (Evsey Domar of MIT
1946)
Focus its attention on the role of capital accumulation into the growth
process:
Growth rate of GDP depends:
Directly on the national net saving rate s
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Document Summary

Study guide 3: classical theories of economic growth and development. After wwii economists in the industrialized world did not have an economic theory to analyze the process of economic growth of lac with large agrarian societies. In the past, model industrial nations were once underdeveloped agrarian societies-->their own experience in transforming their economies from poor agricultural subsistence societies into model industrial giants had important lessons for the (cid:522)backward(cid:523) countries of asia, africa, and lac. The marshall plan injected massive amount of us financial and technical assistance to european countries helping them to rebuild and modernize their economies in a matter of years. Transition was described in sequential steps or stages which all countries should go through to achieve development. They constitute, in the end, both a theory about economic growth and a more general, if still highly partial, theory about modern history as a whole. Below is a detailed outline of rostow"s five stages:

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