Rostow’s model

1. ROSTOW’S MODEL OF DEVELOPMENT
W.W. Rostow was an American
economist who proposed five (5)
stages of economic growth.

2. History of The Rostow Model
One of the first models to account
for economic growth, and probably
still the simplest was put forward
by W.W.Rostow in 1960. He
suggested that all the countries in
his study had the potential to break
the cycle of poverty and develop
through five linear stages.

3. The Stages of Economic Development
This is a linear theory of development.
Economies can be divided into primary
secondary and tertiary sectors. The
history of developed countries suggests a
common pattern of structural change:

4. Changes in employment structure based on the
Rostow Model

5. What was the model ?
Every society had to pass through
these five stages, if they were in
transition to modernity or
development.
What is development?

6. Rostow’s Model of Economic Growth

7. STAGE 1
Traditional Society
The economy is dominated by
subsistence activity.
Output is consumed by producers
rather than traded.
Any kind of trading is done by
bartering.
Agriculture is the most important
industry thus making production
labour intensive.

8. Stage 1 Traditional Society subsistence
economic activity i.e. output is consumed by
producers rather than traded, but is consumed
by those who produce it; trade by barter where
goods are exchanged they are 'swapped';
Agriculture is the most important industry and
production is labour intensive, using only
limited quantities of capital.

9. STAGE 2
Pre-conditions of modernization
 Industrialization would have just began.
 An emergence of transport and
infrastructure to support trade.
 Savings and investment grew
This resulted in entrepreneurs emerging
and external trading.

10. Stage 2 Transitional Stage
(the preconditions for takeoff)
Surpluses for trading emerge
supported by an emerging
transport and infrastructure.
Savings and investment grow.
Entrepreneurs emerge.

11. STAGE 3
 Take Off Stage
Industrialization increased.
Workers switched from the agricultural
sector to the manufacturing sector.
Economic Transitions
Evolution of new political and social
institutions to support industrialization.
Generates increasing incomes and
therefore able to sustain more
investment.

12. Stage 3 Take Off Industrialization
increases, with workers switching
form the land to manufacturing.
Growth is concentrated in a few
regions of the country and in one or
two industries. New political and
social institutions are evolve to
support industrialization.

13. STAGE 4
Drive to Maturity
 The economy begins to diversify
into new areas.
 Technological innovation
a diverse range of investment
opportunities.

14. The economy begins to produce a wider range
of goods and services.
Less reliance on imports.
Stage 4 Drive to Maturity : Growth is now
diverse supported by technological innovation.
This diversity leads to greatly reduced rates of
poverty and rising standards of livivng, as the
society no longer needs to sacrifice its comfort
in order to strengthen certain sectors.

15. STAGE 5
 High Mass Consumption
Economy is geared towards mass
consumption.
The service sector becomes
increasingly dominant.

16. Stage 5 High Mass Consumption
The age of high refers tothe period
of contemporary comfort afforded
many western nations, wherein
consumers concentrate on durable
goods, and hardly remember the
subsistence concerns of previous
stages mass consumption

17. Failures of the Rostow Model
Rostow's model is limited. The
determinants of a country's stage of
economic development are usually seen
in broader terms i.e. dependent on:
The quality and quantity of resources, a
country's technologies, a countries
institutional structures e.g. law of
contract.

18.  Rostow's model explains the
development experience of Western
countries, well. However, Rostow
does not explain the experience of
countries with different cultures and
traditions e.g. Sub Sahara countries
which have experienced little
economic development.

19.  The Rostow model assumes incorrectly that all
countries start off at the same level.
 It predicts to short a timescale between the
beginning of growth and the time when a
country becomes self-sustaining. It over
emphasizes the effect of the learning curve i.e.
the time taken for a country to develop
diminishes as countries learn from others that
are developed.

20.  Its generalized nature makes it
somewhat limited.
 It does not set down the
detailed nature of the pre-
conditions for growth.
 In reality policy makers are
unable to clearly identify
stages as they merge together

21. Strengths of the Model
According to a report on Human
Development :-
 Our economic self-interest calls for rapid
development of the rest of the world: our
export markets will thereby grow and
there will no longer be the lure of low
wages to our jobs.
 A richer world is likely to be a more
peaceful world.

22.  Savings and capital formation
(accumulation) are central to the process
of growth hence development.
The key to development is to mobilize
savings to generate the investment to set
in motion self generating economic
growth.

23. Development can stall at stage
3 for lack of savings – 15-20%
of GDP required. If the
domestic Savings rate is 5%,
then international aid/loan must
total 10-15% in order to plug
the ‘savings gap’. Resultant
investment means a move to
stage 4 Drive to Maturity and
self-generating economic