Page 1 of 10
Journal for Studies in Management and Planning
Available at http://internationaljournalofresearch.org/index.php/JSMaP
e-ISSN: 2395-0463
Volume 01 Issue 03
April 2015
Available online: http://internationaljournalofresearch.org/ P a g e | 88
Analysis of Economic Growth Models for Development
Charles Agwu
PHD, Department of Economic, School of Business and Economics, Atlantic International University, USA
Abstract:
Achieving economic growth and
development is of importance to nations
and this is because one of the
macroeconomic objectives of a country is
to achieve sustainable growth. This paper
analyse different economic growth for
development and the researcher examines
different growth models and explained on
the false paradigm theory on economic
growth model as the basis for economic
dependence of less-developed countries to
industrially developed economy and
recommends that in other to achieve
sustainable growth by less-development
countries as an instrument for economic
development, there is need for less- developed countries to develop home
growth model that will consider structural
differences that exist within the
environment.
Keywords: Economic Growth and
development, Less-developed countries.
1.0 Introduction:
The general accepted definition of
economic growth is the sustainable
increase in the total or average outputs of
goods and services produced in a country.
Understanding different growth models is
of important to countries and this is
because its serves as the basis for
designing and implementing policies by
governments.
Within the context of a continuous
struggle international recognition,
economies all over the world are facing not
such a privileged position of capturing new
techniques or instruments that are
important in having advantage against their
competitors but also to ensure stability
which is instrumental to development.
Performance, whether in the context of
economic, financial or institutional, is an
absolute indicator of the ability to adapt to
frequent macroeconomic changes.
Economic growth accompanied by
a high degree of convergence represents
one of the major challenges of the modern
world architecture. Successive government
in Nigeria understand the need and
important of economic growth and this is
because, some economists are of the view
that there is a positive relationship between
economic growth and other macro- economic objectives of a country such as
full employment, stable inflationary rate
and favourable balance of payment.
According to Denis Goulet (1971)
economic growth is a measure of a positive
change of GDP within an economy and
that production growth is associated with
an improvement in what concerns the
living standards. Also economic growth
highlights a gradual change over the long
period of time, as a result of general
increase of the population as well as of the
economy dynamics.
This research paper will analyze
different economic growth models as an
instrument for achieving economic
development and also examine the basis
for economic growth as a necessary
condition for development.
1.1 Purpose of Study:
Page 2 of 10
Journal for Studies in Management and Planning
Available at http://internationaljournalofresearch.org/index.php/JSMaP
e-ISSN: 2395-0463
Volume 01 Issue 03
April 2015
Available online: http://internationaljournalofresearch.org/ P a g e | 89
The overall objective of this paper is to
analyze different economic growth models
for development. Other objectives in
which this research paper will address are;
i) To examine and analyze different
economic growth models.
ii) Present the theoretical aspect
concerning the concept of economic
growth.
iii) Highlight key determinants of the
economic growth process from different
perspectives and also economic growth
models that had a major impact upon the
development of the economic theories.
iv) To analyze the false paradigm
theory on economic growth model as the
basis for economic dependence of less- developed countries to industrially
developed economy.
v) To analyze different stages of an
economy toward achieving economic
growth and development.
1.2 Significant of Study:
The study is mainly for academic purpose
and it will be of importance to students or
researchers that want to embark on
research on analysis of economic growth
models. Also the study will also be useful
for those in authority and this is because it
will analyze and explain different
economic growth models which will serve
the basis for economy model design and
implementation.
2.0 An overview of selected growth
theories:
There are many theories of
economic growth and development in
economic literature. We classify these
theories into five major groups according
to their focus or philosophical orientation.
Within each group, we select a
representative theory considered most
relevant to concept of development and the
peculiar conduction of most less- developed countries, especially in the sub- Saharan African.
2.1 Classical and Neoclassical
theories and Structural Change Models:
The classical growth theories as
well as the neoclassical theories and
structural change models are group
together based on their general orientation,
even though their conclusions about
factors that determine growth differ
significantly. The classical theory ascribe
largely to the prominent classical
economist, David Ricardo, emphasized
three factors of production, two of which
are variable while one is fixed, thus
leading to diminishing returns to the
variable factor.
The variable factors are capital and
labour. Capital depends on the returns on
investment (profitability) which labour is
depended on population growth, which in
turn depends on growth of per capita
income or wage rate. On account of fixed
land that commands rising rents as
economic development takes place, cost of
production rises due to the rising cost of
rent, leading to dwindling return on
investment. This process is one of the
factors that eventually arrests further
investment and future growth.
On the other hand, the rising wage
rate due to economic development, leads to
population and labour growth, which in
turn leads to falling wage rate as labour
supply expand. Wage rate falls until it
reaches its subsistence level that arrests
further growth in population and labour
supply. The economy is back on zero
growth for investment, population and
Page 3 of 10
Journal for Studies in Management and Planning
Available at http://internationaljournalofresearch.org/index.php/JSMaP
e-ISSN: 2395-0463
Volume 01 Issue 03
April 2015
Available online: http://internationaljournalofresearch.org/ P a g e | 90
labour, with subsistence wage and
marginal existence.
The neoclassical theory improved
on the analysis of classical theory that
failed to predict the historical record of
sustained economic growth and
productivity growth. The neoclassical
theory is basically represented by the
models of Robert M. Solow, brought in
technical progress as an exogenous factor,
while assuming constant returns to scale
with respect to labour and capital. Like the
classical model, the neoclassical also
assumes that labour growth depends on
population growth, but unlike the classical,
the neoclassical assumes that investment or
growth in capital stock is financed out of
national income. This leads to a situation
where the growth in capital approaches the
growth of national income and therefore,
national income is independent of capital
and investment, which itself depend on
income. So we are left with only labour
growth and technical progress as only
factors determining economic
development. Since labour has constant
productivity, the growth of per capita
income then depends only on technical
progress. This model can be expressed
algebraically as follows:
g(Y) = α g(K) + β g(L) + ג ;α +
β = 1(constant returns to scale)
Where g(Y) is the growth of national
income, g(K) is the growth of capital and
g(L) is the growth of labour. With capital
growth depending on income, g(K) = g(Y)
in the long run. The growth of labour g(L)
= n, the growth rate of population. So the
growth equation above becomes:
g(Y) = α g(Y) + βn +ג
So g(Y) = (βn + ג) /(1-α) = n + ג) /1-α),
since α + β = 1 or β = 1- α
The growth of per capita income g(y) =
g(Y) – n, according to the arithmetic of
growth and economic development is
better measured by the growth of per
capita income rather than by the growth of
national income. So we have;
g(Y) = g(Y) – n = ג) /1-α).
This means that economic
development depends ultimately and
exclusively on the exogenous technical
progress or the “Solow residual “ג .This is
one of the major reasons of technological
change. The neoclassical position may be
justified in the sense that there are many
factors that determine technical progress, a
lot of which are non-economic factors.
The structural change model also
employs classical economics to explain
likely dynamics of economic development.
A major structural change theory is that of
Arthur Lewis (1954) entitled “Economic
development with unlimited supplies of
labour”. His theory was later modified and
expanded by John Fei and Gustav Ranis
(1964).
Lewis (1954) assumes that there
two distinguished sectors in the economy
and that the sectors are the traditional rural
agricultural sector and the urban industrial
sector. also that labour is surplus in the
traditional agricultural sector such that if
some are transferred to the urban industrial
sector, there will not be any loss in the
rural agricultural output while there will be
growth in output in the urban industrial
sector, leading to increased profits and
capital accumulation for output expansion.
The modification of Lewis theory
by Fein and Ranis (1964) improved the
theory by recognizing phases of
development. In the initial (first) phase, the
traditional rural agricultural sector behaves
as predicted by Lewis, where there exist
