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ECON 8003AEF/ ECON A826F

(Theories of Economic Growth & Development)

2024 Spring

Lesson 2 exercises

1) According to Rostow, what are the 5 stages of growth? What are the characteristics of each stage?

1. Traditional society

2. Pre- Take off stage：precondition 

3. Take off stage

4. Drive to Maturity

5. High Mass Consumption

2) To start the ‘take-off’ stage, what are the suggestions given by Rostow to the developing countries?

The mobilisation of domestic and foreign saving (including foreign aid) in order to generate sufficient investment to accelerate economic growth.

3) What are the obstacles & constraints of the Harrod-Domar Model?

1. capital constraint

2. The lack of structural, institutional, & attitudinal conditions

3. Insufficient focus to improve technology

4) The Lewis two-sector model assumed the labor supply is ___abundant_____________and the marginal product of the last unit of labor = _zero______.

5) Discuss how the Lewis two-sector explains the economic growth of an economy.

The focus of the model is both the process of Labour transfer and the goth go output and employment in the industrial sector employment growth service brought about by output expansion in the industrial sector.

The speed of expansion is determined by the growth rate of industrial investment and capital accumulation in the industrial sector. Such investment is made possible by the excess of industrial-sector profits over wages on the assumption that capitalists reinvest al this profits.

The faster the rate of capital accumulation, the higher the growth rate of the modern sector and the faster rate of new job creation.

6) According to Figure 2.1 of lecture PPT, as the industrial profit (area WMD1F) are reinvested, KM1increases to ___KM2_____, TPM(KM1) shifts to _TPm（KM2）______, leading to the outward shift of __D1（KM1）_____to D2(KM2). New industrial employment level = ________. At L2, total industrial output = _______, while total wages = area ________and industrial profits = area ________.

7) What is ‘Lewis Turning Point’?

The growing process of industrial sector is self sustaining and Labour employment expansion is assumed to continue until all surplus rural Labour is absorbed in the industrial sector. In that case, urban full employment will be achieved . This is known as the “Lewis turning point”

8) What are the drawbacks of the Lewis two-sector model?

1. The possibility for capitalist to reinvest in more advanced machinery

2. capitalist may not reinvest all their profit in the local economy

3. the non-existence of widespread rural surplus labour

9) According to Chenery’s Patterns-of-development Model, what are the several characteristic features of the development process?

P107 2.2.2

10) What are the 2 mainstreams of thought under the International-Dependence Theory?

1. the neocolonial dependence model

2. The false-paradigm model

11) According to the Neocolonial Dependence Model, what are the roles of the ‘center’? How far do you believe this theory is applicable to the real world cases?

Center is the developed countries

p114  2.3.1

In order to protect their own interest,

12) How could you apply the Neocolonial Dependence Model to the case of Congo? (Please refer to the additional reading on OLE: “The strategy of conscious resistance in the Democratic Republic of the Congo out of International dependence” What development policies will you suggest to improve her economic performance?

13) According to the False-Paradigm Model, what are the causes of the under-development of the developing countries?

p116 2.3.2

Due to wrong and inappropriate advice provide by uninformed & biased international “expert” advisers …

15) What are the 2 mainstreams of thought under the Neo-classical Counter-revolution Theory? Which one emphases the existence of ‘market failure’?

1 The free-market approach

2 the market-friendly approach

The market-friendly approach

16) What are the drawbacks of the Neo-classical Counter-revolution Theory?

1. The traditional neoclassical theory are inapplicable in the developing countries.

2. Competitive free markets generally do not exist.

3. There are widespread externalities of both production and consumption.

17) In this chapter, you have studied 4 classical developmental theories. Which theory/(ies) will you apply to explain the economic development of China from the 1960s to the 1970s? Why?