The Classic Theory of economic development has been dominated by four major and

sometimes competing strands of thought:

1. The linear-stages-of-growth model,

2. Theories and patterns of structural change,

3. The international-dependence revolution, and

4. The neoclassical, freemarket counterrevolution.

1. THE LINEAR-STAGES-OF-GROWTH THEORY: Theorists of the 1950s and 1960s viewed the
process of development as a series of successive stages of economic growth through which
all countries must pass. It was primarily an economic theory of development in which the
right quantity and mixture of saving, investment, and foreign aid were all that was
necessary to enable developing nations to proceed along an economic growth path that had
historically been followed by the more developed countries. Development thus became
synonymous with rapid, aggregate economic growth.
Rostow’s Stages of Growth
The most influential and outspoken advocate of the stages-of-growth model of
development was the American economic historian Walt W. Rostow. According to Rostow,
the transition from underdevelopment to development can be described in terms of a
series of steps or stages through which all countries must proceed.
a. The Traditional Society: The social structure of such societies was hierarchical in which
family and clan connections played a dominant role. Political power was concentrated in
the regions, in the hands of the landed aristocracy supported by a large retinue of
soldiers and civil servants. More than 75 per cent of the working population was
engaged in agriculture. Naturally, agriculture happened to be the main source of income
of the state and the nobles, which was dissipated on the construction of temples and
other monuments, on expensive funerals and weddings and on the prosecution of wars.
 b. The Preconditions for Take-off

This is the transitional era. The pre-conditions for sustained industrialization, according

to Rostow, have usually required radical changes in three non-industrial sectors:

 First, a build-up of social overhead capital, especially in transport, in order to enlarge

the extent of the market, to exploit natural resources productivity and to allow the state

to rule effectively.

 Second, a technological revolution in agriculture so that agricultural productivity

increases to meet the requirements of a rising general and urban population.

 Third, an expansion of imports, including capital imports, financed by efficient

production and marketing of natural resources for exports.

The continuous development and expansion of modern industry was mainly possible by the

ploughing back of profits into fruitful investment channels.

c. Take-off Stage:

Rostow’s central historical stage is the takeoff, a decisive expansion occurring over 20 to

30 years, which radically transforms a country’s economy and society. During this stage,

barriers to steady growth are finally overcome, while forces making for widespread

economic progress dominate the society, so that growth becomes the normal condition.

Conditions for Take-off

i. A rise in the rate of productive investment from, say, 5 per cent or less to over

10 per cent of national income or net national product;

ii. The development of one or more substantial manufacturing sectors with a high

rate of growth;
 iii. The existence or quick emergence of a political, social and institutional

framework which exploits the impulses to expansion in the modern sector and

gives to growth an outgoing character.

One of the principal strategies of development necessary for any takeoff was the mobilization of domestic and

foreign saving in order to generate sufficient investment to accelerate economic growth. The economic mechanism

by which more investment leads to more growth can be described in terms of the

Harrod-Domar growth model,2 today often referred to as the AK model.

S= sY Equation 1

I =∆ K Equation 2

K=cY, therefore

K
=c
Y

∆K
=c
∆Y

∴ ∆ K =¿c∆ Y