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Chapter 3Classic Theories of Economic Growth and Development

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Copyright © 2009 Pearson Addison-Wesley. All rights reserved.3-*Class Theories of Economic Development – Four Approaches Linear stages of growth model Theories and Patterns of structural change International-dependence revolution Neoclassical, free market counterrevolution

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Copyright © 2009 Pearson Addison-Wesley. All rights reserved.3-*Development as Growth and Linear-Stages TheoriesRostow’s Stages of Growth Harrod Domar Growth Model

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Copyright © 2009 Pearson Addison-Wesley. All rights reserved.3-*(3.1)(3.2)(3.3)(3.4)The Harrod-Domar Model

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Copyright © 2009 Pearson Addison-Wesley. All rights reserved.3-*The Harrod-Domar Model(3.5)(3.6)(3.7)

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Copyright © 2009 Pearson Addison-Wesley. All rights reserved.3-*Criticisms of the Stages ModelNecessary versus sufficient conditions

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Copyright © 2009 Pearson Addison-Wesley. All rights reserved.3-*Structural-Change ModelsThe Lewis two-sector model

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Copyright © 2009 Pearson Addison-Wesley. All rights reserved.3-*Figure 3.1 The Lewis Model of Modern-Sector Growth in a Two-Sector Surplus-Labor Economy

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Copyright © 2009 Pearson Addison-Wesley. All rights reserved.3-*Criticisms- Lewis ModelRate of labor transfer and employment creation may not be proportional to rate of modern-sector capital accumulation Surplus labor in rural areas and full employment in urban? Institutional factors? Assumption of diminishing returns in modern sector

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Copyright © 2009 Pearson Addison-Wesley. All rights reserved.3-*Figure 3.2 The Lewis Model Modified by Laborsaving Capital Accumulation: Employment Implications

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Copyright © 2009 Pearson Addison-Wesley. All rights reserved.3-*The International-Dependence RevolutionThe neoclassical dependence model Unequal power, core-periphery The false-paradigm model Using “expert” advisors The dualistic-development thesis Superior and inferior elements can coexist Conclusions and implications No insight on development, empirical evidence

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Copyright © 2009 Pearson Addison-Wesley. All rights reserved.3-*The Neoclassical CounterrevolutionChallenging the statist model Free market approach Public choice approach Market-friendly approach Traditional neoclassical growth theory Solow model Conclusions and implications institutional and political realities in developing world

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Copyright © 2009 Pearson Addison-Wesley. All rights reserved.3-*Theories of Development: Reconciling the DifferencesDevelopment economics has no universally accepted paradigm Insights and understandings are continually evolving Each theory has some strengths and some weaknesses

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Copyright © 2009 Pearson Addison-Wesley. All rights reserved.3-*Case Study: South Korea and Argentina

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Copyright © 2009 Pearson Addison-Wesley. All rights reserved.3-*Concepts for ReviewAutarky Average product Capital-labor ratio Capital-output ratio Center Closed economy Comprador groups Dependence Dominance Dualism False-paradigm model Free market Free-market analysis Harrod-Domar growth model

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Copyright © 2009 Pearson Addison-Wesley. All rights reserved.3-*Concepts for Review (cont’d)Lewis two-sector model Marginal product Market-friendly approach Necessary condition Neoclassical counterrevolutionNeocolonial dependence model New institutionalism New political economy approach Open economy Patterns-of Development analysis

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Copyright © 2009 Pearson Addison-Wesley. All rights reserved.3-*Concepts for Review (cont’d)Periphery Production function Public choice theory Savings ratio Self-sustaining growth Solow neoclassical growth modelStages-of-growth model of development Structural-change theory Structural transformation Sufficient condition Surplus labor

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Copyright © 2009 Pearson Addison-Wesley. All rights reserved.3-*Concepts for Review (cont’d)Traditional neoclassical growth theory Underdevelopment

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Copyright © 2009 Pearson Addison-Wesley. All rights reserved.3-*Appendix 3.1: Components of Economic Growth Capital Accumulation, investments in physical and human capital Increase capital stock Growth in population and labor force Technological progress Neutral, labor/capital-saving, labor/capital augmenting

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Copyright © 2009 Pearson Addison-Wesley. All rights reserved.3-*Figure A3.1.1 Effect of Increases in Physical and Human Resources on the Production Possibility Frontier

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Copyright © 2009 Pearson Addison-Wesley. All rights reserved.3-*Figure A3.1.2 Effect of Growth of Capital Stock and Land on the Production Possibility Frontier

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Copyright © 2009 Pearson Addison-Wesley. All rights reserved.3-*Figure A3.1.3 Effect of Technological Change in the Agricultural Sector on the Production Possibility Frontier

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Copyright © 2009 Pearson Addison-Wesley. All rights reserved.3-*Figure A3.1.4 Effect of Technological Change in the Industrial Sector on the Production Possibility Frontier

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Copyright © 2009 Pearson Addison-Wesley. All rights reserved.3-*Appendix 3.2: The Solow Neoclassical Growth Model

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Copyright © 2009 Pearson Addison-Wesley. All rights reserved.3-*Appendix- Solow Growth Model

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Copyright © 2009 Pearson Addison-Wesley. All rights reserved.3-*Appendix- Solow Growth Model

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Last Updated: 8th March 2018

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