Rostow's Stages of Economic Growth

• The quality of life in a community is directly influenced by the success of the local economy.
• Local economies often face difficulties like limited resources, market access, and a lack of innovation.
• The main goal is to develop social innovation by creating innovative solutions tailored to local needs.

Rostow's Stages of Economic Growth

• Walt W. Rostow was an American economic historian and a influential advocate of the stages-of-growth model of development.
• All societies can be identified within one of five categories in their economic dimensions.
• The five categories are: the traditional society, the pre-conditions for takeoff into self-sustaining growth, the take-off, the drive to maturity, and the age of high mass consumption.

The Traditional Society

• Key aspects include attitudes and technology that was prominent before the turn of the eighteenth century
• Dominated by subsistence agriculture
• Characterized by intensive labor and low levels of trading
• Agriculture is the most important industry.

Pre-condition Stage

• This stage includes radical changes in three nonindustrial sectors for sustained industrialization.
• Increased transport investment enlarges the market and allows for production specialization.
• Revolution in agriculture is necessary to feed a growing urban population.
• An expansion of imports, including capital, can be financed by exporting natural resources.

Take-Off

• This is a decisive expansion occurring over 20 to 30 years that radically transforms a country's economy and society.
• During this stage, barriers to steady growth are overcome, and forces for widespread economic progress dominate.
• Growth is concentrated in a few regions and one or two manufacturing industries.
• The level of investments reaches over 10% of GNP (Gross National Product).

Drive to Maturity

• Characterized as a period of regular, expected, and self-sustained growth.
• The economy is increasing.
• Regular growth and modern technology is extended to a bulk of resources.
• There may be a shift in emphasis from coal, iron, and heavy engineering to machine tools, chemicals, and electrical equipment.

Mass Consumption

• Individual incomes are more than what is necessary for buying essentials.
• Citizens experience high and rising consumption per head, with rewards spread more evenly.
• The service sector becomes more dominant.
• Emphasis shifts from the production of industrial goods to consumer goods.

Harrod-Domar Growth Model

• Every economy must save a certain proportion of its national income to replace worn-out or impaired capital goods.
• There are two determinants of the rate of growth of a country.
• The first is the Capital-Output Ratio, representing the relationship between changes in capital stock and output.
• The second is the Saving Ratio, which considers the relationship between savings and national income.

Lewis Theory of Economic Development

• W. Arthur Lewis formulated a model that focused on the structural transformation of a primarily subsistence economy in the 1950's.
• In the Lewis model, the underdeveloped economy consists of two sectors.
• The first is a traditional, overpopulated, rural subsistence sector characterized by zero marginal labor productivity.
• Agriculture generally under-employs workers, with the marginal productivity of agricultural labor being virtually zero.
• Labor then moves to the more productive, urban, industrial sector.
• Industrialization is now possible, with an increase in the supply of workers who have moved from the land.
• Industrial firms begin to profit, which can be reinvested into further industrialization, leading to capital accumulation.

Problems and Policies

• Absolute poverty is the number of people unable to command sufficient resources to satisfy basic needs.
• It can be measured by the headcount, H, of those whose incomes are below the absolute poverty line, YP.
• The poverty line is set at a constant level in real terms to track progress over time.

Poverty

• Refers to a state of lacking sufficient resources for living and well-being.
• Condition that exists when people lack adequate income and wealth to sustain a basic standard of living
• The United Nations defines poverty as lacking income and productive resources to ensure sustainable livelihoods.
• Poverty as defined by the UN includes hunger and malnutrition, ill-health and mortality from illness, and limited access to education and other basic service
• Poverty also includes homlessness and inadequate housing, unsafe environment and social discrimination and exclusion

Types of Poverty

• Relative poverty is having fewer resources than others in the same society.
• People without certain goods may be considered relatively poor in developed countries, even if they are better off than those in developing countries who survive on less than $3.10 per day, lack shelter, and access to clean water and sanitation.

Absolute Poverty vs. Relative Poverty

Why Bother About Inequality

• Extreme income inequality can lead to economic inefficiency.
• Extreme income disparities can undermine social stability and solidarity.

Causes of Poverty

• Unemployment and the loss of income associated with it is one of the main causes of relative poverty in developed economies and absolute poverty in many developing economies
• Low wages are jobs that are low paid but in countries with minimum wages they are not sufficient enough to prevent workers from being poor and unable to buy sufficient goods and services to enjoy a reasonable standard of living
• Illness can reduce life expectancy which is caused by malnutrition and lack of healthcare. Life expectancy measures the average years a person is anticipated to live for based on statistical trends.
• Lack of education causes for an uneducated work force. This can be a bad thing because people may lack prosperity. People who lack education are less employable than those with.
• Corruption is widespread in many less developed countries: causes increases in poverty and exclusion.
• Wars and internal conflicts impacts output/trade that causes resources for funding arms, weapons and armies.
• Age is a key factor in causing poverty. poverty also exists with elderly people and children.

International Measures to Reduce Poverty

This resource explores Rostow's Stages of Economic Growth. It highlights the five stages of economic development: traditional society, pre-conditions for takeoff, takeoff, drive to maturity, and age of high mass consumption. It also goes into detail of key aspects of traditional society stage.