Rostow proposed that countries pass through 5 stages of economic development: 1) Traditional society dominated by subsistence agriculture and barter trade. 2) Transitional stage with increased specialization and trade. 3) Take-off stage of industrialization driven by investment and economic growth. 4) Drive to maturity with economic diversification and innovation. 5) High mass consumption stage with consumer industries and service sector dominance.

1. Stages of Economic Development Group ’9’ IM - 3

2. Rostow's Stages of DevelopmentWalt Whitman Rostow (1916- 2003) In 1960, the American Economic Historian, W. W. Rostow, suggested that countries passed through five stages of economic development.

3. Stage 1 -- Traditional Society The economy is dominated by subsistence activity where output is consumed by producers rather than traded. Any trade is carried out by barter where goods are exchanged directly for other goods. Agriculture is the most important industry production is labor intensive using only limited quantities of capital.

4. Stage 2 -- Transitional Stage (the preconditions for takeoff) Increased specialization generates surpluses for trading. There is an emergence of a transport infrastructure to support trade. As incomes, savings and investment grow entrepreneurs emerge. External trade also occurs concentrating on primary products.

5. Stage 3 -- Take Off Industrialization increases, with workers switching from the agricultural sector to the manufacturing sector. The economic transitions are accompanied by the evolution of new political and social institutions that support the industrialization. The growth is self-sustaining as investment leads to increasing incomes in turn generating more savings to finance further investment.

6. Stage 4 -- Drive to Maturity The economy is diversifying into new areas. Technological innovation is providing a diverse range of investment opportunities. The economy is producing a wide range of goods and services and there is less reliance on imports.

7. Stage 5 -- High Mass Consumption The economy is geared towards mass consumption. The consumer durable industries flourish. The service sector becomes increasingly dominant.

8. What sectors emerge in every stage of development?

9. Rostow's Stages of Development

10. Classification of Countries 1. MDC (more developed countries) : Countries with high per capita income. Canada, England, Germany, France, U.S 2. LDC’s (Less developed countries) : Countries with Low per capita income. Asian countries & Latin America

11. Cont… 3. LLDC’s ( Least developed countries ) Extremely Low capita income levels Central Africa.

12. Questions? ?