Theories of Development

  • Mario CocciaEmail author
Living reference work entry
DOI: https://doi.org/10.1007/978-3-319-31816-5_939-1

Synonyms

Definition

Development is a process of disproportionate growth of systems. In economics, development is a multidimensional process that generates economic, technological, social and institutional change to support wealth of nations and a comprehensive wellbeing of people in society.

Introduction

Economic development is a process that generates economic, social and technical progress of nations. The fundamental elements of development in society are: the improvement of health, the growth of wealth, the creation of new knowledge and technology, etc. Economic development is fostered in appropriate social systems with high democracy and culture, good economic governance, efficient higher education system, and high innovative outputs (Coccia 2010, 2014, 2014b, 2018a). Economic development can be explained with different theories that are discussed in next sections (Fig. 1).
Fig. 1

Theories of Development in Economics

Theories of Development in Economics

The study of economic development is one of the most important research fields in economics, political economy, and other social sciences (Nafziger 2005). The schools of classical and neoclassical economics analyze the development in terms of the efficient allocation of scarce productive resources to support optimal growth, produce and expand the range of goods and services. Instead, new economic approaches explain the development with socioeconomic, political, and institutional factors that accelerate economic growth, improve the levels of living, and reduce poverty of population, income inequality between people, and violent crime in society (cf., Todaro and Smith 2003; Coccia 2017). A traditional economic measure of development is given by gross domestic product (GDP): the sum of gross value added by all resident producers in the economy plus any product taxes and minus any subsidies not included in the value of the products. Contemporary studies and theories have added noneconomic indicators for measuring development in society, such as Human Development Index (HDI):

a summary measure of average achievement in key dimensions of human development: a long and healthy life, being knowledgeable and have a decent standard of living… The health dimension is assessed by life expectancy at birth, the education dimension is measured by mean of years of schooling for adults aged 25 years and more and expected years of schooling for children of school entering age. The standard of living dimension is measured by gross national income per capita (Human Development Reports 2018).

In this context, theories of development can be divided in two macro categories (cf., Fig. 1):
  • Theories of development of national systems

  • Theories of regional development

Theories of Development of National Systems

Classical Theories of Economic Development

  • Linear stages theories are: Rostow’s stages of growth and the Harrod-Domar growth model (cf., Todaro and Smith 2003). The theory of stage of growth suggests that more saving and investment can accelerate the rates of economic growth. However, the theory of stages does not clarify the economic development of poor nations, because suggested drivers (e.g., physical capital) are necessary but not sufficient factors for supporting economic growth. In fact, high investments of physical capital in many developing nations have not generated historical paths of economic development because of lack of other socioeconomic factors, such as, an efficient higher education system and good economic governance. European countries after World War II, by contrast, increased physical capital in a context with good institutions and high-skilled human resources, generating long-run economic growth.

  • Structural change models. This approach focuses on mechanisms that transform economic structure of nations from traditional agriculture to industrial and service system. In particular, structural change approach is based on theories of neoclassical price and resource allocation. Two main approaches are: the model of two-sector surplus labor by Lewis (1954) and econometric analysis of the patterns of development by Chenery and colleagues (1975). The model of Lewis (1954) considers a process of modern sector self-sustaining growth and employment expansion that are assumed to continue until all surplus of rural labor is absorbed in new industrial sectors of urban areas. However, a limitation of the model by Lewis (1954) is the assumption of diminishing returns in industrial sector, whereas empirical evidence shows increasing returns in that sector (Todaro and Smith 2003).

    Empirical patterns of development consider the steady accumulation of physical and human capital, the change in consumer demand from food and basic necessities to manufactured goods and services, the growth of cities and firms associated with migration of people from farms and small towns to large cities, decline of family size and of overall rate of growth of population. However, economic policies based on this approach have not, in many cases, generated pathways of development within and between countries.

  • The international-dependence models consider developing countries in a relationship of dependence with developed countries. Major approaches are: neocolonial-dependence, false-paradigm, and dualistic models. These approaches reject neoclassical theory of development designed to accelerate growth of gross national product; they also reject the empirical results by Chenery about some characteristics of development that poor countries should pursue (cf., Todaro and Smith 2003). These international-dependence models stress the imbalance of socioeconomic power between rich and poor nations. According to the American sociologist Immanuel Maurice Wallerstein, the world system has core and periphery regions, in which powerful and wealthy core societies dominate and exploit weak and poor peripheral societies. In particular, the strong nations reinforce and increase the flow of surplus because their governments provide economic assistance to capitalist classes on world market. The major weakness of this approach is the actual experience of Least Developed Countries (LCDs) that have had nationalization of firms and state-run production with negative effects on long-run patterns of economic growth.

  • Neoclassical counterrevolution considers underdevelopment of LCDs as internally induced phenomena caused by government intervention and bad economic policies. Neoclassical counterrevolution’s approach suggests that market price and resource allocation usually produces better results than state intervention. Moreover, the liberalization of national markets generates additional domestic and foreign investments that increase the rate of capital accumulation. In this context, the neoclassical growth model by Solow (1956) expanded the Harrod-Domar model, adding to growth equation a second factor, labor, and inserting a third independent variable, technology. Solow’s model shows diminishing returns to labor and capital separately and constant returns to both factors jointly. In this theoretical framework, technological progress is the residual factor that explains long-run economic growth (cf., Coccia 2011, 2018a, 2018b). The output growth is due to increases in labor quantity and quality (population growth and education), increases in capital (through saving and investment), and improvements in technology. Closed economies grow more slowly, whereas open economies have an income convergence at higher levels because capital flows from rich countries to poor countries where capital-labor ratios are lower and returns on investments are higher. However, free markets and open economies may also increase income inequality, violence, and public debts that may reduce the well-being of people in the long run (Coccia 2017, 2017a).

    Contemporary Models of Development (cf., Todaro and Smith 2003)

  • Endogenous growth theory argues that the growth of Gross Domestic Product (GDP) is determined by production processes within economic system, rather than by forces outside that system. This theoretical framework has been developed by Kenneth Arrow in 1962, Hirofumi Uzawa in 1965, Paul Romer in 1986, Robert Lucas in 1988, and Sergio Rebelo in 1991. Subsequently, Paul Romer in 1987, Philip Aghion and Peter Howitt in 1992, and Gene M. Grossman and Elhanan Helpman in 1991 incorporated imperfect markets and Research and Development (R&D) to endogenous growth model. This new growth theory endeavors to explain different growth rates across countries and factors associated with the rate of growth of GDP that are left unexplained and exogenously determined in the Solow neoclassical model of growth (i.e., residual factor; cf., Solow, 1956). In general, investments in human capital generate external economies and productivity improvements that offset to explain the existence of increasing returns to scale. Endogenous growth models also explain anomalous international flows of capital that generate wealth inequalities between rich and poor nations. However, economic literature shows that high rates of return on investment within developing economies (with low capital-labor ratios) are eroded by low levels of investments in education, infrastructure, and R&D (cf., Coccia 2011, 2018b). Especially, new growth theory depends on neoclassical premises that are inappropriate for LCDs. Finally, empirical studies provide a limited support to the predictions of endogenous growth theory (Todaro and Smith 2003).

  • New theory of economic development stresses complementarities between several factors necessary for successful development of nations. Investments have to be done by many agents to produce results for any individual agent. When complementarities are present, an action taken by one firm, worker, organization, or government, it increases the incentives for other agents to take similar actions. In particular, complementarities involve investments whose returns depend on investments done by other agents. In this context, the model of Big Push suggests that production decisions by modern-sector firms are mutually reinforcing (cf., Todaro and Smith 2003). Another model in this theoretical framework is the Kremer’s O-ring model (1993). This approach focuses on a production function with many tasks, which must be proficiency all completed to have a full value of product. Mistakes during the process of production can be extremely costly, reducing the product’s value (the name O-ring comes from the accident of the space shuttle Challenger that exploded because one of the components, the O-rings, failed). Underdevelopment of countries can be also due to a coordination failure: agents have inability to coordinate their behavior (choices), generating frictional factors for patterns of economic growth.

Theories of Regional Development

Geoeconomic space with regional disparities can generate poverty, unemployment, social issues, income inequality, violent crime, etc. (Coccia 2009, 2017). The goal of the theory of regional development is to reduce regional disparities within a country to support a general development of nation as a whole system. In this context, development was defined by Perroux (1955, p. 308) as “a selective, cumulative process which does not appear everywhere at the same time but becomes manifest at certain points in space with variable intensity.” Perroux (1955, p. 309) also argues that the growth does not appear everywhere at the same time and with the same intensity; it appears at specific spatial points or poles of growth with varying intensity of socioeconomic interaction; after that, it these poles spread economic activities along various channels, generating different effects on growth of regional and national economic systems. Growth pole theory was proposed for solving inequalities in economic growth of regions within nation. A critical factor of this approach is the concept of growth pole: a large cluster of firms and/or industries strongly related through input-output linkages to a leading industry (or propulsive) firm and/or industry. Propulsive industry and interrelated industries innovate and grow faster than other industries external to the pole, generating economic development in specific areas by their capacity to stimulate different forces within socioeconomic system.

The concept of growth pole was subsequently developed by Jacques Raoul Boudeville considering a set of expanding industries located in an urban area that induces the development of economic activitis throughout zones of influence. The essence of growth pole analysis is that spatial concentration of economic activities and agglomeration of population are the most efficient factors to support economic growth of regional systems.

Although agglomeration of industries is a key element in spatial organizational efficiency, of course, it is not the sole force supporting regional growth (Coccia 2009). Other factors, supporting economic growth associated with propulsive industry, are an efficient higher education system, low corruption and criminality, good economic governance, high innovative outputs and new technology in democratic contexts, etc. (cf., Coccia 2010, 2014, 2015a, 2015b, 2018a, 2018c, 2018d, 2019). Moreover, the growth pole has to be created in spatial areas with at least 250,000 people before the above mechanisms work within geoeconomic space for supporting regional growth. From the viewpoint of policymakers, the major advantage of these approaches is the opportunity for integrating industrial policy, physical planning, and inter-regional and intra-regional economic planning.

Sustainable Development and Conclusions

The global and industrial society, driven by new technology, is generating economic growth rather than a sustainable development of nations (Coccia 2015). Scholars assert that one of the main effects of development on environment is pollution, which started with the Industrial Revolution in Europe and North America, driven by technical and economic change of steam engine, internal combustion engine, and other new technology (Coccia 2015). In general, economic development of the last decades is causing demographic, environmental, and climate change. In particular, European, North American, and Chinese development is generating socioeconomic progress and well-being of people but also the diffusion of some mutagens and genotoxic carcinogens from industrialization processes (e.g., pollutants, pesticides in agriculture, several chemicals, asbestos, processed or chemically preserved food, etc.; Coccia 2015). Hence, development of nations generates economic growth but also a general pollution that has negative consequences on environment, health (e.g., cancers), and food safety in society (cf., Coccia 2015, p. 62; Coccia 2013, 2014a, 2016).

Overall, then, the concept of development is driven by the expanding content of human life interests, using new technology and science advances (Coccia 2019, Coccia and Wang, 2016). Human society should focus on patterns of sustainable development, rather than economic growth, for improving long-run environmental and social factors, and health of people. However, development is also affected by economic, social, psychological, anthropological, and perhaps biological factors that can generate uncertain and unknown long-term effects in environment and society.

Cross-References

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© Springer Nature Switzerland AG 2019

Authors and Affiliations

  1. 1.CNR – National Research Council of ItalyTorinoItaly
  2. 2.Yale University School of Medicine & Yale New Haven HospitalNew HavenUSA