Rostow's Model of Stages of

Growth
American economic historian W. W. Rostow(1971)
explained five stages of economic & social development
through which all societies have to pass. According to
him, development requires substantial capital
investment. For economies of Less Developed Countries
(LDC's) to grow, right conditions for such investment
would have to be created.
Highlights of Rostow's Model
Rostow's model of stages of growth is of the neo-classical
tradition.
Model takes a linear view of development; this means
every countries are believed to develop in the same way
over time. Differences exist because different countries
enter different stages at different times.

 Stage 1 Traditional Society

The economy is dominated by
subsistence activity. Output is
consumed by producers; it is not
traded.
Trade is barter where goods are
exchanged directly for other goods.
Agriculture is the most important
industry. Production is labour
intensive using only limited
quantities of capital.
Technology is low, and resource
allocation is determined very much
by traditional methods of
production.

 Stage 2 Transitional
Stage (Preconditions for
Takeoff)
Increased specialization
generates surpluses for
trading. There is an
emergence of a transport
infrastructure to support
trade. Entrepreneurs
emerge as incomes,
savings and investment
grow. External trade also
occurs concentrating on
primary products. A
strong central
government encourages
private enterprise.

 Stage 3 Take Off

Industrialization increases
with workers switching
from the agricultural
sector to the
manufacturing sector.
Growth is concentrated in
a few regions of the
country and within one or
two manufacturing
industries. The level of
investment reaches over
10% of GNP. People save
money.
The economic transitions
are accompanied by the
evolution of new political
and social institutions that
support industrialization.
The growth is selfsustaining as investment
leads to increasing
incomes in turn

 Stage 4 Drive to
Maturity
The economy is
diversifying into
new areas.
Technological
innovation is
providing a diverse
range of investment
opportunities. The
economy is
producing a wide
range of goods and
services and there
is less reliance on
imports.
Urbanization
increases.
Technology is used
more widely.

 Stage 5 High Mass Consumption

The economy is geared towards
mass consumption, and the level
of economic activity is very high.
Technology is extensively used
but its expansion slows. The
service sector becomes
increasingly dominant.
Urbanization is complete. Now,
multinationals emerge. Income
for large numbers of persons
transcends basic food, shelter
and clothing. Increased interest
in social welfare.

 Limitations of Rostow's Model

Countries will develop along the same path; & that countries
cannot skip stages nor do stages in a different order.
Model is ethnocentric; it is based on American & European
history & shows American high mass consumption to be the
end result of development.
Model assumes that capitalist development is the only way
to achieve economic development. Model represents "noncommunist manifesto."
Model fails to account for non-uniform distribution of
resources. In addition, it fails to take into account the
dominance of developed countries over less developed. E.g.,
less developed countries paid higher energy prices further
increasing the competency gap.
It does not take into account market stagnation; market
expansion is less rapid in developing countries than what is
ideally required for development. This is mainly due to lack
of a middle class in such societies. Most of the population is
very poor with little or no income