Development Economics

Topics: Capital accumulation, Economic development, Investment Pages: 2 (592 words) Published: March 21, 2013
Development Economics focus is on methods of promoting economic growth and structural change. The early proponents of development as a policy emerged with Keynesian Macroeconomics which encouraged the need for Government Intervention in order for economic growth to take place. This theory identified that fixed capital formation was a major source of economic growth and development. It also pointed out a need for a raise in domestic savings rate in the poor countries since savings led to investment to create capital. Arthur Lewis, in his contribution to Development Economics in his 1945 model focused on the rate of savings and investments as the central determinant of development and growth. This basic understanding of development economics can still be sustained today through two concepts: ‘The Big Push” and “The Vicious Cycles of Poverty”. The Big Push Model is one originated by Paul Rosenstein-Rodan. It emphasis that in order for developing countries to obtain economic development, large amounts of investments needs to be made. He argued that the entire industry which is intended to be created must be treated and planned as a mass entity. According to Rodan, there are three indivisibilities in underdeveloped countries which justify “The Big Push”. * Indivisibility in Production function

* Indivisibility of demand and;
* Indivisibility in the supply of savings
Indivisibility in the Production function states that indivisibilities of inputs, outputs or processes can lead to increase in returns. The services of social overhead capital in basic industries such and power, communication and transport has a long gestation period and cannot be imported, therefore require a sizeable lump of investments which will pave the way for quick yielding investments. Under Indivisibility of demand, Rodan is saying that underdeveloped countries should set up interdenependent industries in interdependent countries. Therefore these interdependent countries would be each...
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