 The Linear Stages of Growth Models:

The first generation of economic development models

was formulated in the early years after the World War II.
These early models focused on the utility of massive
injections of capital to achieve rapid GDP growth rates. The
two famous models are Rostow’s stages growth model and
the Harrod–Domar model
Theorists of the 1950s and early 1960s viewed the process
of development as a sequence of historical stages. This
view was popularized by Rostow (Ingham 1995). Building
on the historical pattern of the then developed countries,
Rostow (1960) claimed that the transition from
underdevelopment to development would pass through
five stages: the traditional society, the preconditions for
take-off, the take-off, the drive to maturity and the age of
high mass consumption.
 The decisive stage is the take-off, through which developing
countries are expected to transit from an underdeveloped to a
developed state. Increasing rate of investments is considered to be
necessary to induce per-capita growth. Like Rostow’s stages
growth model, the Harrod–Domar model emphasized that the
prime mover of the economy is investments (Ghatak 2003). Every
country therefore needs capital to generate investments.
Developing countries commonly used the principal strategies of
development from the stage approach in the early post-war years.
 With a target growth rate, the required saving rate can
then be known. If domestic Savings were not sufficient,
foreign savings would be mobilized. Although Rostow
(1960), Harrod (1948) and Domar (1947) were right about
the important role of investments that is most closely
correlated with the economic growth rate, this is not the
only condition for a country to develop.
The key weakness of these models lies in their
simplifying assumptions. A single production function
issimply assumed for all countries
Every economy is assumed to have the same
necessary conditions and would pass through the
same phasing ,stage by stage. But that economic
growth path, which historically had been followed by
the more developed countries, is not the only one
pathway. The development process is actually highly
nonlinear (Chenery 1960; Chenery and
Countries may pursue distinct development paths
(Morris and Adelman 1988). Economies may miss
stages, or become locked in one particular stage, or
even regress depending on many other
complementary factors such as managerial capacities,
and the availability of skilled labor for a wide range
of development projects
 Structural Change Models:
During most of the 1960s and early 1970s, economists
generally described the development process as structural
change by which the reallocation of labor from the
agricultural sector to the industrial sector is considered the
key source for economic growth. Two well-known
representatives of this approach are the two-sector model
(Lewis 1954), and the structural change and patterns of
development
 In Lewis’ (1954) two-sector model or theory of surplus labor,
labor increasingly moves away from the agricultural sector to the
industrial sector. However, with unlimited supply of labor from the
traditional sector, these transferred workers continually received
only subsistence wages. The excess of modern sector profits over
wages and hence investments in the modern sector continued to
expand and generate further economic growth on the assumption
that all profits would be reinvested. Both labor transfer and
modern sector employment growth were in turn brought about by
output expansion in that sector.
This process of modern sector self sustaining growth and
employment expansion facilitated the structural
transformation from a traditional subsistence economy to a
more modern developed economy to take place. Like the
Harrod–Domar model, the Lewis model considered savings
and investments to be the driving forces of economic
development but in the context of the less developed
countries. However, several Lewis’ assumptions are not valid
such as those relating to rural surplus labor, and the
proportional rate of expansion in capital accumulation in the
modern sector
 Although promoting the roles of savings and investments, the
structural change and patterns of development analysis extended in
comparison with the Lewis model.
The analysis identified that the steady accumulation of physical and
human capital is among conditions necessary for economic growth,
apart from savings and investments. Moreover, the structural changes
occurred not only in the two sectors but also in all economic functions,
including the change in consumer demand from an emphasis on food
and basic necessities to desires for diverse manufactured goods and
services, international trade and resource use as well as changes in
socioeconomic factors such as urbanization and the growth and
distribution of a country’s population
The most significant explanation of this approach was
provided by Chenery (1960), Chenery and Taylor (1968),
Kuznets (1971) and Chenery and Syrquin (1975). By
focusing on the pattern of development rather than theory,
the structural change models may mislead policy-makers.
Since the reallocation of labor from the agricultural sector
to the industrial sector is considered the engine of
economic growth, many developing countries
implemented policies that often promote the industry and
neglect agriculture.
 But the negative effects of policies that turned against
that vital sector have come to be widely recognized (World
Bank 2000). Criticisms of these
models were reinforced by the fact that in many
developing countries, poverty was prevalent. Following the
pattern recommended by structural change economists, in
the late 1960s, the attention of policy-makers began to
shift towards an emphasis on human capital, i.e. education
and health