Theories of Development

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  1. Actual Growth
    • Who: Harrod and Domar
    • When: 1950s
    • What: A concept that the actual aggregate output change. There is no guarantee that an economy will achieve sufficient output growth to sustain full employment in a context of population growth.
  2. Sassen’s Informal Economy
    • Who: Saskia Sassen
    • When: 1996
    • What: Refers to those income generating activities occurring outside the state’s regulatory framework that have analogs
    • within that framework. Informalization is embedded in the structure of current economic system and therefore, there is a need to focus on solving the growing problem of relationship between new economic trends and old regulatory framework by developing a new regulations to fit the new economic norm.

    • The trends in consumption, profit-making capacities, and spatial organization indicate that the expansion of the Informal Economy is rooted partly in conditions that are integral to the contemporary phase of an advanced market
    • economy.
  3. Balanced Growth Theory
    • Who: Ragnar Nurske & Paul Rosenstein-Rodan
    • When: 1960s
    • What: This theory sees the main obstacles to development in the narrow market and, thus, in the limited market
    • opportunities. Under these circumstances, only a bundle of complementary investments realized at the same time has the chance of creating mutual demand.

    The theory refers to Say's theorem and requests investments in such sectors which have a high relation between supply, purchasing power, and demand as in consumer goods industry, food production, etc.

    • The real bottleneck in breaking the narrow market is seen here in the shortage of capital, and, therefore, all potential sources have to be mobilized. If capital is available, investments will be made. However, in order to ensure the
    • balanced growth, there is a need for investment planning by the governments.

    • Development is seen here as expansion of market and an increase of production including agriculture. The possibility of structural hindrances is not included in the line of thinking, as are market dependencies. The emphasis is on capital
    • investment, not on the ways and means of achieving capital formation. It is assumed that, in a traditional society, there is ability and willingness for rational investment decisions along the requirements of the theory. As this will most likely be limited to small sectors of the society, it is not unlikely
    • that this approach will lead to super-imposing a modern sector on the traditional economy, i.e., to economic dualism.
  4. Big Push Theory
    • Who: Paul Rosenstein-Rodan
    • When: 1940s
    • What: This theory is an investment theory which stresses the conditions
    • of take-off. The argumentation is quite similar to the balanced growth theory
    • but emphasis is put on the need for a big push. The investments should be of a
    • relatively high minimum in order to reap the benefits of external economies.
    • Only investments in big complexes will result in social benefits exceeding
    • social costs. High priority is given to infrastructural development and
    • industry, and this emphasis will lead to governmental development planning and
    • influence.
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Theories of Development
Theories and Models of Development Summary
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