Economies

Economies

Introduction:

Some economies in the world are more developed than other economies. There are many reasons why economies that were at per in terms of development after world war two have different levels of economic development. One of the reasons that will be discussed in this paper is the availability of natural resources for development, according to Robert Solow there are those economic resource factors and also the non-economic resource factors that lead to economic development.

Economic factors include capital accumulation, technology, foreign aid, international trade, natural resources and government expenditure. He non-economic resource factors include domestic environment, rules and regulation and peoples cultural values.

This paper also states the economic theories that explain why post world war two economies have differing development levels. Some of the theories that will be discussed in this paper include the classical theory, mercantile theory and the growth stage theory by Rostow.

The classical theory:

The classical theory of development was developed by a number of classical theorist, they include Adam Smith, David Ricardo, Thomas Mathus and John Mill. This theory states that economic development will be achieved when there is capital accumulation, the capital accumulation of a country will depend on savings and investment.

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This theory states that the developed countries today embarked on capital accumulation through encouraging investment and saving and that is why they are more developed than others are. For these reason post world war two economies have differing developmental levels.

The theorist also stated that trade plays a major role in economic development and growth, through trade, economies are able to acquire wealth and therefore they advocated for free and fair trade and also favorable terms of trade, all this has rendered the developed countries to be the way they are today.

The mercantile theory:

The mercantile theory explains why major economies in the world have achieved high levels of economic growth while other economies still lag behind in terms of development, the principle of the mercantile theory was that economies had the desire to make their state more stronger, the need to strengthen the state was only through economic growth and development, therefore economies embarked on this desire and they have now achieved high levels of development.

The political policy of the mercantile was the need to increase the national political power, which was to be symbolized by political mighty, and this was to be achieved through economic development. The economies attached much weight to gold, how to acquire it and retain it, they also considered trade as a source of gold and therefore the economies engaged in trade and acquired gold and then gave much value to the gold they acquired.

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The theory also states that colonization played a role in the development of these developed economies, the new territories acquired were source of raw materials for their industries, source of cheap labor and slavery, and finally these territories were later to b e captive markets.

Therefore, the countries that engaged in colonization and also trade are developed today than others, the mercantile theory states that gold, colonization and trade has led to the differences in development of these countries.

Growth stage theory:

This theory also explains why some economies are more developed than others are, this theory was developed by Rostow, he states that for an economy to be fully developed it has to pass through some stages, the developed countries are already in the final stage of development but some others are still stuck in the stages of development. He identified five stages of development namely:

– The traditional stage

– Precondition stage

– Take off stage

– Drive to maturity

– High mass consumption stage

The traditional stage:

This stage according to Rostow is characterized by low levels of GDP, Unemployment and poor adoption of science and technology, people in the economy are governed by norms and customs and they have no urge to development, this is where most undeveloped countries are.

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Most economies after world war two were at this stage but due to some initiatives they adopted they are now developed. Rostow stated that for any economy to move to the next stage there is need for social reforms and nationalism also the adoption of new technology in the economy.

Some countries adopted new technology and also initiated various social reforms and that is the reason why they more developed than other economies.

Precondition stage:

This stage as Rostow stated is supposed to be characterized by changes in the structure of the economy, these changes include the existence of political freedom, change in the attitude towards science and technology, centralized tax system and the development of social overhead capital, this stage involves the people adopting new technology.

Take off stage:

This stage is reach ed when the economy has met the need of the precondition stage, this stage is characterized by the emergence of institutional frameworks that aid in improving investment, through investment and at the same adoption of modern technologies an economy achieves high levels of development.

Drive to maturity:

This stage will be achieved when the economy adopts modern technology and there is an increase in savings and investment that aid in capital accumulation, there is also an increase in

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per capita income in the economy and the GDP will raise. This stage leads to the final stage, which is the high mass consumption stage, which is the last stage of development of an economy.

High mass consumption stage:

This is the last stage in the development stages by Rostow theory of development, this stage is characterized by high standards of living, high levels of consumption in the economy, full adoption to modern technology. According to Rostow most of the countries that e today termed as developed have reached this stage, therefore these is for the reason why the other economies are less developed, the developing countries are still stuck in the lower stages of development while the developed countries have achieved the final stage of development.

Apart from the above theories, three are other factors that have rendered some countries to be more developed than others have, these factors are discussed below:

Natural resources:

Most developed countries have a variety and abundant resource for development, these resources include crude oil and oil products, minerals and also precious metals, the developed countries mine these natural resources, which have resulted to their high development levels. Crude oil is a direct or an indirect input in almost all the production processes and this have helped these countries to develop. However some countries are endowed with natural resources but have still not achieved high levels of development, the reason is because these developing economies lack the capital and technology to extract these resources, the countries also do not make efforts to explore the existence of these resources in their country. As a result, there has been the economic backwardness in these countries.

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Therefore, after world war two the now developed countries embarked on the exploration of natural resources which aided them to achieve high levels of development, they also involve themselves in mining of these resources which they trade with other countries where they earn from exports of these products increasing their GDP levels.

Debt problem:

Most developing countries acquired debts from other countries in order to enhance growth in their country. The developing countries are now faced with the debt problem where by they are forced to service the debts which account for a high percentage of their GDP, when these debts were attained the economies did not utilize this resource appropriately. In addition, some of these debts are now accumulating day by day due to high interest rates.

On the other hand the developed countries are the ones that rendered them these funds, they earn high interest rates and at the same time get the debt payments as a result the developing countries are stuck in the debt problem while the developing countries earn from these debts making them to be at high development levels than the other countries.

Governance and wars:

The developing countries have poor governance and there is also the problem of regional and civil wars, after world war two the developed countries adopted sound and good governance in their countries, also peace and conducive environment in the developed countries has lead to investment and also economic development, on the contrary the developing countries are faced with regional wars that discourage investment, infrastructure is also destructed in the process and this has made them to lag behind. Political stability therefore has led to the high development levels of the developed countries.

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Science and technology:

The developed countries have increased the funding of research and development, the developed countries have adopted modern technology and they are the providers of this technology to the less developed countries, by the time the developing countries have adopted the technology provided the developed countries have already progressed to more advanced technology.

Technology is a way in which the developed countries make work easier and at the same time, the technology reduces the cost of production, when the cost of production is lower in developed countries than the developing countries then the developing countries are forced to import the cheap products from the developed countries. As a result, the developed countries acquire economic power over the developing countries and this explains why these countries are far from the developing countries in terms of economic development. An example is Japan, Japan is the second largest economy in the world while US is the largest, the two economies are known for their advanced technology and Japan is known to be the first country to develop from a developed country to a developed country and this is linked to the advancement in technology.

Conclusion:

From the above discussion there are a number of reasons why developed countries have achieved high economic growth while the developing countries still lag behind in terms of development, according to the classical theory and the mercantile capital accumulation and the accumulation of wealth through trade and gold and at the same time colonization is one reason why these countries are developed than the other countries.

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The growth stage theory by Rostow also explain the reason why these countries are more developed, the theory states the stages of development and explains why the developing countries have not achieved full levels of development, the developing countries are still in the lower stages of development while the developed countries are in the stage of high mass consumption. This theory gives direction to what should be done to the economy in order to achieve high levels of development.

The abundance of natural resources have also determined the level of development of these countries, countries like the US have abundant natural resource which they extract for inputs in their industries and at the same time they export and earn from these exports. The other reason why some economies are far in terms of development is the existence of good governance and political stability. when a country has political stability and good governance then these makes a conducive environment for economic development, the existence of the debt problem which is as a result of many debt and high interest rates on these debts has led to the economic backwardness of the developing countries, the issue of technology is also an important factor in development, developed countries have modern technology which makes the cost of their production to be less than the cost of production in the developing countries, as a result the developing countries are forced to import products from the developed countries which makes them to have balance of trade.

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References:

Brian Snow (1997) Macroeconomics: introduction to macroeconomics, Rout ledge publishers, UK

Stratton (1999) Economics: A New Introduction, McGraw Hill Publishers, US

Todaro M.P (2004) Economics for a Developing World, McGraw Hill Publishers, US

Philip Hardwick Et Al (2004) Introduction to Modern Economics, Pearson Education Press, UK

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