Growth Models and Underdeveloped Economies

Abstract

T HE postwar literature on growth economics has tended to distinguish the growth process in a relatively highly developed from that in a so-called area. In the former case the analyses have been characterized by severe rigor, with consequent imposition of restrictive assumptions setting definite and specific boundaries to the problems. To a large extent, work in this area is an extension of the savings-investment analysis of Keynes into more dynamic formulations. In discussions of the developmental process of underdeveloped countries, however, there is the exactly opposite approach; the problem is usually very generally defined, rigor is frequently completely absent, and the variables considered inevitably spill over into areas which economists have long treated as beyond the scope of the discipline (for example, population, and technological change). In the absence of a frameworka model within which to examine the problems of the underdeveloped country, much of the discussion has taken place in a virtual theoretical vacuum and consequently is often unsatisfactory both logically and practically. The purpose of this paper is to examine a modified version of the growth theory developed by Domar, Harrod, Fellner,' and others in the light of the more commonly known characteristics of the underdeveloped and to attempt to make a more systematic and rigorous statement than has hitherto been made of the developmental process and problems in these countries. The procedure is as follows: I shall examine the assumptions made in existing growth models and the conditions necessary to make these assumptions (or alternative ones) valid. Then, on the basis of readily available data for the United States and the United Kingdom, I suggest hypotheses about the conditions that have actually obtained in the economic growth of these countries. These hypotheses are then transplanted to the underdeveloped country, and their implications are examined for an economic system with the features of the modern underdeveloped country. It seems necessary to digress a moment in order to state explicitly what the general features of the modern underdeveloped country are and to indicate the form of the growth theory that I shall use. Of course, no two underdeveloped countries are exactly alike; but the descriptive literature' on such countries suggests enough similarity that we may confidently describe a representative