Government intervention to correct market failures and Rostow's theory
- Examples of government intervention to correct market failure in a developing economy include government spending on infrastructure, education and health. These services all create positive externalities. This makes the economy more attractive to foreign capital investment.
- This requires a commitment to "good governance" - a lack of corruption, stability and well-intentioned investment.
- However, the government has a problem in developing nations. Taxes reap very low revenues due to the low incomes of individuals within the economy.
A schematic economic history of the UK
- In the Middle Ages the UK had very little social mobility and hopes for future prosperity did not exist in most of the population. Society was unchanging and static.
- During the Tudor age the commercial revolution happened and trade started. Merchants started to offer insurance to people trading overseas.
- In the 18th century there was an agricultural revolution as people selectively bread stock. Canal building started to transport coal, which lead to the development of the coal industry.
- In the 20th century the age of mass consumption began.
Walt W. Rostow in the 1960s and 1970s when development economics was a new subject worked as an economic historian and said "developed economies have passed through five distinct stages." Here are the 5 stages.
- Traditional (in the UK the years 1000-1500)
- Pre-conditions for take off (17th/18th century in the UK)
- Take off into sustained economic growth (Late 18th century in the UK)
- Drive to maturity (19th century in the UK)
- Developed/mass consumption (20th century onward in the UK)
Rostow further stated that this was true of all developed economies, and those yet to develop. Britain took many centuries to develop, having created a "blue print" for development as it developed. Developing nations should be able to develop more quickly as they can follow the example of Britain and other developed nations. Rostow suggested the following self-fuelling relationship.
These notes form a homework given in a lesson on 17/09/2004.
