1. ROSTOW’S
THEORY OF STAGES OF ECONOMIC GROWTH
1.1.
Rostow
stresses that societies have five stages towards development: (1) traditional
society; (2) pre-conditions for take-off; (3) take-off; (4) drive to maturity;
and (5) age of high consumption.
1.1.
Rostow
identifies the pre-conditions for take-off : (1) community surplus does not
flow into hoarding, luxury consumption and low-productivity investment outlay;
(2) institutions are developed for cheap and adequate working capital; (3) one
or more sectors of the economy grow rapidly; and (4) foreign capital inflows.
Although Rostow recognizes that take-offs occurred based almost wholly on
domestic sources of finance, Rostow
nevertheless advocates the use of foreign capital inflows.
1.1.
Rostow
defines a take-off as occurring within 2 to 3 decades and involve the
following: (1) rise in productive investment to 5-10% of national income; (2)
development of manufacturing sectors; and (3) emergence of a political and
social framework “that will exploit the impulse to expansion.”
2.
ON THE SO-CALLED NEO-CLASSICAL COUNTERREVOLUTION
What occurred in the 1980s was a “classical counterrevolution” led by the new classicals (also known as
“rational expectations economics” or RATEX) and not a neo-classical
counterrevolution.
3.
“NEW” GROWTH THEORIES
3.1. Todaro was incorrect in criticizing endogenous
growth theory for overlooking the role of infrastructure and institutional
factors. On the contrary, endogenous growth theory, particularly the
interpretation described as “supply side approach” does recognize the role of
such factors. In recognizing the role of these factors, however, the recent
versions of endogenous growth theory (including that described as the supply
side approach) emphasizes on the need for governments to withdraw from
intervening in the market and for governments instead to strengthen and rely on
market forces and institutions.
3.2. Basically, both the neo-classical and recent
versions of endogenous growth theories belong to the classical economics (i.e.,
“markets clear”). Although endogenous growth theory started out as Keynesian,
recent versions of endogenous growth theory, particularly the supply-side
approach, is basically new classical. In the supply-side approach version of
endogenous growth theory, government is basically asked to limit its role to
that of strengthening or creating markets when markets are either weak or
missing in cases of market failures.