Question

Discuss various stages of economic growth.

Answer 1

1. Traditional society: This is an agricultural economy of mainly subsistence farming, little of which is traded. The size of the capital stock is limited and of low quality resulting in very low labour productivity and little surplus output left to sell in domestic and overseas markets
2. Pre-take off stage: Agriculture becomes more mechanised and more output is traded. Savings and investment grow although they are still a small percentage of national income (GDP). Some external funding is required - for example in the form of overseas aid or perhaps remittance incomes from migrant workers living overseas
3. Take-off stage: Manufacturing industry assumes greater importance, although the number of industries remains small. Political and social institutions start to develop - external finance may still be required. Savings and investment grow, perhaps to 15% of GDP. Agriculture assumes lesser importance in relative terms although the majority of people may remain employed in the farming sector. There is often a dual economy apparent with rising productivity and wealth in manufacturing and other industries contrasted with stubbornly low productivity and real incomes in rural agriculture.
4. Drive to maturity: Industry becomes more diverse. Growth should spread to different parts of the country as the state of technology improves - the economy moves from being dependent on factor inputs for growth towards making better use of innovation to bring about increases in real per capita incomes
5. Age of mass consumption: Output levels grow, enabling increased consumer expenditure. There is a shift towards tertiary sector activity and the growth is sustained by the expansion of a middle class of consumers.