Development and Theories of Endogenous Growth

Abstract

J. Schumpeter (1961) contrasted mere growth of the economy (that is, growth of its population and wealth) with development, which he viewed as ‘a distinct phenomenon, entirely foreign to what may be observed in the circular flow or in the tendency towards equilibrium. It is spontaneous and discontinuous change in the channels of flow, which forever alters and displaces the equilibrium existing’ (p. 69). He emphasised the role of innovations and the concomitant private anticipation of entrepreneurial profit as major factors explaining development. While Schumpeter had the development of contemporary developed or industrialised countries in mind, economists writing after the Second World War on development of contemporary developing countries described them variously as being caught in a ‘vicious circle of poverty’, ‘a low level equilibrium trap’, ‘a set of interlocking vicious circles’ and so on. Indeed, Hirschman (1958) argued that ‘once development has started, the circle is likely to become an upward spiral — [and that] develop-ment depends not so much on finding optimal combination for given resources and factors of production as on calling forth and enlisting for development purposes resources and abilities that are hidden, scattered or badly utilized’ (p. 5) and that ‘Development presumably means the process of change of one type of economy into another more advanced type’ (p. 52, emphasis in the original).