ECONOMIC GROWTH MODELS
Neoclassical growth model


An economic theory that outlines how a steady economic growth rate will be accomplished with the proper amounts of the three driving forces: labor, capital and technology. The theory states that by varying the amounts of labor and capital in the production function, an equilibrium state can be accomplished. When a new technology becomes available, the labor and capital need to be adjusted to maintain growth equilibrium.

Rostow's stages of growth

A model by W.W Rostow that postulates that economic growth occurs in five basic stages, of varying length which are :
  1. Traditional society
  2. Preconditions for take-off
  3. Take-off
  4. Drive to maturity
  5. Age of High mass consumption
  • Traditional society
    • characterized by subsistence agriculture or hunting & 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, commercial agriculture & 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 & 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
  • Take off
    • manufacturing begins to rationalize and scale increases in a few leading industries, as goods are made both for export and domestic consumption
    • the "secondary" (goods-producing) sector expands and ratio of secondary vs. primary sectors in the economy shifts quickly towards secondary
    • textiles & apparel are usually the first "take-off" industry, as happened in Great Britain's classic "Industrial Revolution"
  • Drive to maturity
    • diversification of the industrial base; multiple industries expand & new ones take root quickly
    • manufacturing shifts from investment-driven (capital goods) towards consumer durables & 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 & 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
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