Stages in Development a Country Needs to Become a Self-sustaining Economy


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Using Rostow's model as a basis what are the stages in development a
country needs to become a self-sustaining economy?

The Rostow model is used to detect what stage of development a nation
is in, within the course of the 5 stages the increase in development
will show that a country will gradually gain a self-sustaining
economy. Within the 5 stages of the Rostow model each stage differs
and eventually leads to a nation having a self-supporting economy.
Within the first couple of stages (Stage 1 & 2) the economy needs to
have some foreign direct investment and also must develop some form of
capital formation. In stage 3 & 4 the country becomes less reliable
upon foreign investment and the economy starts to diversify, as
capital formation is able to support the economy. Within the 5th stage
there is no foreign investment, the economy is completely
self-sustaining and the country is fully developed.

Development occurring within the Rostow model begins at the first
stage, the traditional economy. Within stage 1 the economy is
basically reliant upon the agricultural community and thus labour has
little time to work within any other fields. The economy has a lack of
capital and a poor education system and thus labour is unskilled and
only able to work within the primary sector. There is no real capital
formation and there is limited savings thus the amount of investment
within the nation is restricted apart from within the agricultural
sector. The countries of Ethiopia and Somalia are clear examples of
this, in order for development to occur the economy increase the
amount of capital that it receives.

In order for the economy to receive capital there is an increase in
foreign investment within the country and thus leads the stage 2 of
the Rostow model. In the second stage, preconditions for take off,
there is an increase in foreign investment into the agricultural area.
Development within the agricultural changes from subsistence to
commercial and thus leads to some capital formation which introduces
investment into infrastructure. If commercial development does occur
it will mean that the government will be able to introduce tax and
thus spend expenditure upon education, welfare, infrastructure and
injections into the economy. A nation within the second stage of the
Rostow model is the Philippines, but the economy still needs more
development in order for it to be self-supporting.

In order for a nation to have a self-sustaining economy the third
stage of the Rostow model influences the increase of Secondary Sector
employment leading the increase of development within a country. In
Stage 3, take off, investment acts as a stimulus for more investment

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and leads to strong growth in foreign investment, and foreign
investors take advantage of the low wage rates. The economy begins to
diversify and the secondary sector employment increases dramatically
but there is still limited growth within the service industry. There
is an increase within government expenditure and it leads to
large-scale investment in infrastructure, which increase economic
stimulus. Vietnam and Thailand are good examples of nations currently
within stage 3 of the Rostow model.

The fourth stage of development within the Rostow model, the drive to
maturity, is a clear motive for a nation to eventually have a
self-supporting economy. In the fourth stage the economy becomes
increasingly diversified and is less reliable upon foreign investment
because there is enough capital formation within the country. The
multiplier effect becomes active within the fourth stage and it means
that there is an increase in government expenditure to spend more
leading to larger industries and attraction of other like industries,
industrial agglomeration. Rapid urbanisation occurs and there is a
significant decrease in the rural population. Malaysia, China,
Argentina and Chile are all countries within the 4th stage of the
Rostow model.

The 5th stage within the Rostow model is the final stage showing that
a country has a self-sustaining economy.


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