A Model of Economic Development

One of the earliest and most influential models of the process of economic development was suggested by the economist Walter Rostow in 1962. Rostow posited that economic development was a process that all regions of the world would go through and experience in similar ways. His model assumed that regions would progress in a linear fashion through economic stages. The first stage was what he called a “traditional” economy, one based on agriculture and with limited access to or knowledge of advanced technologies. This first stage was followed by a series of other stages characterized by increasing technological sophistication and the introduction of industrialization. Rostow’s final stage is called the “age of high mass consumption,” the stage that he said characterized the United States and much of western Europe. In this stage, industrialization has developed to such a point that goods and services are readily available, and most people can accumulate wealth to such a degree that they don’t need to worry about subsistence needs.

Rostow’s model has been criticized for a variety of reasons. While the simplicity of the model is appealing, its assumptions about the world often just don’t stand up against reality. For example, the model suggests that countries and regions proceed on this path to development in isolation from one another. As we will explore in this chapter, however, different countries and their economies are interlinked in complex ways, so that if one country’s economy is based primarily on services and consumption, it needs other regions and economies to supply its food and manufactured goods and vice versa. In addition, the model assumes that all economies will develop without obstacles from other countries, and we know that this is rarely true, since, for example, some countries may deliberately try to stop economic development in other countries that they think will become their competitors. We also know that different cultures think, feel, and act differently. The proposed goal of Rostow’s model—high levels of mass consumption—may not be considered the highest level of development to many people in the world for whom other factors, such as political freedom or decent working conditions, are more important than material goods.

In this chapter we will be using the terms developing and developed to refer to different regions of the world, but we won’t be assuming, as the Rostow model does, that there is a normal and linear progression from one to the other. We refer to developing regions as those characterized by economies that include a good deal of subsistence activities but that also include some manufacturing and service activities. In these regions, people are often unable to accumulate wealth, because they are often producing just enough, or at times not enough, food and other resources for their own immediate needs. These countries therefore have a lower GDP and are considered relatively poor. We will use the term developed to refer to those regions of the world characterized by economies that are based more on manufacturing and services. In these regions, people are better able to accumulate resources, and therefore these regions have a higher GDP and are considered wealthier.