Stages of Economic Development

The stages of economic development are best-known model for economic growth proposed by Walt Rostow in the 1960's. He suggested that a country goes through five stages as the country's economy develops. Rostow's model presents only one explanation for variations in the economic development and quality of life of different countries. Rostow's model describes the development as he saw it in Europe and North America, elsewhere economic development may not occur in the same way.

Walt Rostow's Biography

Walt Rostow, born October 7, 1916, was a well known American, economic historian. He was a well educated man who was active in politics, war and who had the determination and goal to improve the society and country he was living in. Throughout his life, between teaching at different universities, and winning a surplus of awards, Rostow spent his time publishing many works which spread within a broad spectrum of topics. The work he is most famous for is titled, "The Stages of Economic Growth", published in 1950. Though very controversial, Rostow’s theory has lasted decades and continues to make an impact on how countries are classified. "The Stages of Economic Growth" outlines five stages that a country goes through in order to develop its economy. Below we have outlined these five stages.

5 Stages to Economic Development

Stage 1: Traditional Society

- Countries in this stage have an economy dominated by subsistence agriculture.
- Due to the domination of agriculture, they have severely limited potential for both economic and population growth.
- Both social and economic progresses are limited by natural controls such as droughts and outbreaks of disease. IPS3.jpg
- Government structures are often feature absolute monarchies or dictatorships and are inflexible because they are used to operating in conditions that change very little over centuries.
- Example: Britain before about 1750, Canada before 1880, and many of today’s Fifth World countries such as Sudan, Somalia.

Stage 2: Establishing the Preconditions for Takeoff

- When a country reaches the stage where it is able to start the transition to a more complex, advanced economy.
- This occurred first in Great Britain at the beginning of the Industrial Revolution in 1750. The transition was different in Britain than in other nations that reached this stage later on.
- The conditions that prepared the country for economic takeoff had to be developed in Britain because there were no external models to follow. So when the remained of Western Europe and other countries moved to this stage, they could choose among a variety of examples to follow.
- Rostow believed that the takeoff stage could be reached only if a society was able to achieve a surplus of wealth or savings that could be invested in vital economic sectors like transportation, communications and natural resource exploitation.
- If a country is capable to achieve these conditions, it is suggested that the society is starting to develop a sense of national purpose and that part of this development is the creation of a more effective, responsive central government.
- Examples: Western European nations when through this stage in the late 1700s and early 1800s, Canada was there in the mid-1800s and some Fifth World and many Fourth World countries are now at this stage.

Stage 3: Economic Takeoff

- A country has reached this stage when their economy starts to change dramatically in response to the introduction of important technological innovations.
- The agriculture changes from primarily subsistence to primarily commercial and manufacturing becomes a more important part of the economy. The tertiary sector of the economy expands in response to the growth of cities and the number of paid workers who become customers for service providers.
- Example: Great Britain reached this stage first, in the very late 1700s. Other countries like France and the Unite States were there by 1860 and Canada reached the takeoff staged by 1900. Several Fourth World and poorer Third World nations are at this stage now.

Stage 4: The Drive to Maturity

- When a country reaches this stage it is when there is an extended period of sustained growth. Economic gain outpaces population growth, so per capita wealth increases. The economy becomes more diversified with a continued expansion of manufacturing and a variety of services.
- Here is when the modern, efficient production methods came into use and by now an increasing percentage of the nation’s wealth is invested in developing the economy.
- Example: Great Britain’s economy reached maturity in the 1850s, with France and the United Stages following around 1910 and Canada reached it by the 1950s. However more recently, economies like those of Hong Kong, Singapore, and South Korea were able to reach maturity more quickly than was the norm before World War II.

Stage 5: High Mass Consumption Industrial.jpg

- In this stage, many people have incomes that are greater than necessary for buying essentials such as shelter, food, and clothing.
- As a result, there is a growing demand for additional consumer goods and services. Also the society is wealthy enough to invest in social programs such as improved health care systems and educational opportunities.
- Example: This stage first occurred in the United States in the 1920s and Canada followed shortly after. Also mass consumption economies developed in Western Europe and Japan in the years following World War II.


Positive and Negative Impacts of Rostow's Model

positive-negative-comments.jpgRostow's model provdes some important and necessary and important accomplishments and mile stones that must be achieved in order for development and growth to happen in an economy. These stages may seem reasonable and accurate, but along with the truths, there are some issues that arise with this model. Firstly, this model is reflected towards European and North American economies which provides a bias opinion. If the model was to be more accurate and less bias, Rostow would have to continue his studies and make observations towards other areas in the world. This will create a model that is more relevant to the world as a whole, rather than just ‘important’, ‘wealthy’ or prominent areas. Secondly, this model creates limitations to growth and development. It does not outline specifics, but rather highlights the key of investment in order for growth to happen. In reality, there are actually many details and specific accomplishments or progressions that are essential for growth in a larger sense. Lastly, within his model, there is not much room to steer away from the specific stages. Rostow implies that an economy must go through stage 2 before stage 3, which may not be the case. Also, an economy might only develop in one aspect rather than all, which could cause it to experience more growth in one area, but still be hindered and limited in another. In conclusion, Rostow’s model relies on specific conditions for economic growth and development rather than focusing on a broad range of areas that need to be developed as a whole.

Canada's Economic Development

Canada reached the fifth stage shortly after the United States in 1920. This however, was before the country reached full maturity in the 1950s. As a country, Canada was able to develop according to Rostow's model due to its influence it obtained from the United States as a border country. Canada's trade became a major influence on the explosive expansion of the country. Throughout the Rostow stages, Canada shows a dramatic progression, in which their economy continually progress to a higher stage. Canada's economy has become one of the wealthiest economies and shows a matured government strucutre. Also Canada's economy has relied purely on a European structure and remains the same economy today. In the past century Canada continues to develop into a positive manner and has one of the most prosporous economies and continues to grow in wealth, per year.