Theories of Economic Development

Theories of Economic Development

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        Classical Liberal

a. Development is understood as economic growth and capital-formation. The key to economic growth was capital formation.
b. This led to an emphasis on large-scale infrastructure projects and on foreign aid loans.
c. In the "stages" version of this approach, undeveloped countries were thought of largely as "primitive" or "early" versions of Western countires. Lesser Developed Countries needed to follow the pattern of development set by the west. For example, Alexander Gerschenkron and W. W. Rostow.
Social Theories of Development
d. Emphasizes the importance of "human capital" in development. The key to economic growth was education, health, fertility, etc.
e. Shifted concerns from the overall rate of economic growth to considerations of poverty, inequality, urbanization and other social ills.
f. In the "small is beautiful" version of this approach, some economists even questioned the desirability of economic growth. For example, E. F. Schumacher.
Structural Theories
g. Emphasized the conditions unique to Third World countries. The key to economic growth was recognizing that the experience of Europe could be duplicated in the context of former colonies.
h. Shifted concerns to "import substitution," high tariffs and government protectionism. A Marxist version of this set of theories also developed based on Lenin’s analysis of colonialism.
i. In the "dependency" version of this approach, some economists feared that the Third World would regress into a source of raw materials for developed nations and that the world economy would be divided into a "core" and a "periphery." For example, Raul Prebisch.
Neo-classical Theories
j. Emphasizes the negative role often played in development. The key to economic growth is free markets.
k. Shifted concerns from the role of government—often considerable in structural theories—to private investment and market efficiency.
l. This set of theories is currently the most widely practiced. M. Friedman is a major theorist.