STAGES OF ECONOMIC GROWTH BY W.W. ROSTOW
Overview of Theory
Prof. W.W. Rostow, an eminent economic historian, has described the historical process of transition
from underdevelopment to development in terms of a series of five stages of growth through which all
countries must pass to reach the ultimate destination of a developed country
Five Stages of Growth
• The Traditional Society • Preconditions for take-off • The take-off period
• The drive to maturity • Age of mass consumption
Stage # 1
Traditional Society
• Primitive society having no access to modern science and technology
• Allocates a large proportion of its resources to agriculture
• This traditional society is not completely static
• Limit to attainable output per head due to absence of access to modern science and technology
Stage # 2
Preconditions or the Preparatory Stage
• Covers a long period of a century or more during which the preconditions for take-off are established
• People use modern science and technology for increasing productivity in both agriculture and industry •
A new class of entrepreneurs emerges who mobilize savings and undertake investment in new enterprises
and bear risks and uncertainty.
• Agriculture produce sufficient food grains to meet demand of growing population and of workers who
get employment in agriculture
• Increase in agricultural incomes would lead to the demand for industrial products and stimulate
industrial investment
• Expanding agriculture provide savings needed for expansion of the industrial sector.
Stage # 3
The “Take-Off’ Stage
• Covers a brief period of two to three decades in which economic growth takes place more or less
automatically
• Desire to achieve economic growth to raise the living standards dominates the society
• Revolutionary changes occur in both agriculture and industry
• Productivity level sharply increase.
, • Revolutionary changes occur in both agriculture and industry and productivity levels sharply increase
• Greater urbanization and urban labour force increases
• Self-sustaining and self-generating economic growth,
Stage # 4
Drive to Maturity
• Economy becomes mature and is capable of generating self-sustained growth
• Rates of saving and investment are of such a magnitude that economic development becomes automatic
• Overall capital per head increases
• Initial key industries which sparked the take-off decelerate as diminishing returns set in
• Average rate of growth is maintained by a succession of new rapidly-growing sectors with a new set of
leading sectors
• Proportion of population engaged in agriculture and other rural pursuits declines
• Structure of country’s foreign trade undergoes a radical change,
Stage # 5
Mass Consumption
• Per capita income of a country raises to such a high level that consumption basket of the people
increases beyond food, clothing and shelters to articles of comforts and luxuries on a mass scale
• New types of industries producing durable consumer goods come into existences which satisfy the
wants for more consumption
Externality
An externality is a cost or benefit caused by a producer that is not financially incurred or received by that
producer. An externality can be both positive and negative and can stem from either the production or
consumption of a good or service. The costs and benefits can be both private to an individual or an
organization—or social, meaning it can affect society as a whole
Types of Externality
Negative Externalities
Most externalities are negative. Pollution is a well-known negative externality. A corporation may decide
to cut costs and increase profits by implementing new operations that are more harmful to the
environment. The corporation realizes costs in the form of expanding operations but also generates
returns that are higher than the costs.
However, the externality also increases the aggregate cost to the economy and society making it a
negative externality
Overview of Theory
Prof. W.W. Rostow, an eminent economic historian, has described the historical process of transition
from underdevelopment to development in terms of a series of five stages of growth through which all
countries must pass to reach the ultimate destination of a developed country
Five Stages of Growth
• The Traditional Society • Preconditions for take-off • The take-off period
• The drive to maturity • Age of mass consumption
Stage # 1
Traditional Society
• Primitive society having no access to modern science and technology
• Allocates a large proportion of its resources to agriculture
• This traditional society is not completely static
• Limit to attainable output per head due to absence of access to modern science and technology
Stage # 2
Preconditions or the Preparatory Stage
• Covers a long period of a century or more during which the preconditions for take-off are established
• People use modern science and technology for increasing productivity in both agriculture and industry •
A new class of entrepreneurs emerges who mobilize savings and undertake investment in new enterprises
and bear risks and uncertainty.
• Agriculture produce sufficient food grains to meet demand of growing population and of workers who
get employment in agriculture
• Increase in agricultural incomes would lead to the demand for industrial products and stimulate
industrial investment
• Expanding agriculture provide savings needed for expansion of the industrial sector.
Stage # 3
The “Take-Off’ Stage
• Covers a brief period of two to three decades in which economic growth takes place more or less
automatically
• Desire to achieve economic growth to raise the living standards dominates the society
• Revolutionary changes occur in both agriculture and industry
• Productivity level sharply increase.
, • Revolutionary changes occur in both agriculture and industry and productivity levels sharply increase
• Greater urbanization and urban labour force increases
• Self-sustaining and self-generating economic growth,
Stage # 4
Drive to Maturity
• Economy becomes mature and is capable of generating self-sustained growth
• Rates of saving and investment are of such a magnitude that economic development becomes automatic
• Overall capital per head increases
• Initial key industries which sparked the take-off decelerate as diminishing returns set in
• Average rate of growth is maintained by a succession of new rapidly-growing sectors with a new set of
leading sectors
• Proportion of population engaged in agriculture and other rural pursuits declines
• Structure of country’s foreign trade undergoes a radical change,
Stage # 5
Mass Consumption
• Per capita income of a country raises to such a high level that consumption basket of the people
increases beyond food, clothing and shelters to articles of comforts and luxuries on a mass scale
• New types of industries producing durable consumer goods come into existences which satisfy the
wants for more consumption
Externality
An externality is a cost or benefit caused by a producer that is not financially incurred or received by that
producer. An externality can be both positive and negative and can stem from either the production or
consumption of a good or service. The costs and benefits can be both private to an individual or an
organization—or social, meaning it can affect society as a whole
Types of Externality
Negative Externalities
Most externalities are negative. Pollution is a well-known negative externality. A corporation may decide
to cut costs and increase profits by implementing new operations that are more harmful to the
environment. The corporation realizes costs in the form of expanding operations but also generates
returns that are higher than the costs.
However, the externality also increases the aggregate cost to the economy and society making it a
negative externality
