The Modernization Theory And Theories Of Economic Growth

Modernization theory is inadequate with Global Inequality, because it is not the answer to why poverty still has a huge effect on the world. This theory deals more with the conflicts between modernity and tradition. Underdeveloped countries are more into their cultures, they believe there are certain things that should not be taken away. Nations have tried to industrialize, yet cultures traditions affect the countries development. The traditions are usually superstitions, ethnocentrism, fatalism, pride, dignity, and modesty; these variables are a

Over time some societies become more modern than others creating an unequal balance among other states globally. It is the thought that the modernization theory in some societies, are left behind because of advances in technology and within the economy also (Macionis and Plummer, 2012:p 306). Rostow (1990: p12) suggested that the modernization theory is created by an outside government or corporation to introduce new technologies and build industries to make money. As the four phases of modernization are explained above, it is simple to understand how these societies built upon modernization can create global inequalities and unequal balance within an underdeveloped society. However,

Globalization over the past twenty has become an issue in many countries. This industrialization of second and third world countries by Western Civilization creates many opportunities for the inhabitants. Not only does it expand trading markets, but also promotes productivity and efficiency; thus improving the country and integrating it into the industrial world. This process not only benefits third world counties, but also industrialized nations by allowing them to export goods to the developing world and increase their profit margin.

Modernization Theory- “Low income countries are affected by their lack of industrialization and can improve their global economic standing through

Modernization theory is a hypothesis used to clarify the procedure of modernization that a country experiences as it moves from a simple society to a modern one. Dependency theory is the idea that assets spill out of a fringe of poor and immature states to a centre of rich states, enhancing the latter to the detriment of the former. These two theories contrast in that modernization theory clarifies how created states work and develop, whereas dependency theory outline how work and develop are restricted. Modernization theory clarifies the advancement and improvement of innovation in more steady regions of the world (Culp, 2014). Dependency theory looks at the impacts that modernization in one district has on different parts of the world. Dependency theory is more comprehensive than modernization theory. Modernization theory emphasises that instruction, innovation and broad communications are noteworthy reasons why created districts pull ahead from others. Be that as it may, modernization theory does not operate on a worldwide scale where the assets, work and power originate to make this advancement conceivable. In modernization theory, the majority of the advancements that local areas or states make originate from an aggregate interior exertion.

Theories of modernization have therefore concentrated on the overall internal blockages Third World countries on the advent of mass consumer society and the general, economic changes as political, and cultural to be made to achieve this goal.

This paper will focus on Rostow’s Stages of Economic Growth and Andre Gunder Frank’s critique of modernization theory in The Development of Underdevelopment and Sociology of Development. These two authors offer a limited view of the broader debate between modernization and dependency theory in the second half of the twentieth century and thus this paper does not claim to be a comprehensive study of these two

“A comparative analysis of the key differences between the linear stages- of- growth development theory and the neoclassical development theory”

Modernization theory and dependency theory can be seen as the two most important development theories of the 20th century. Modernization theory of development can be first credited to Walt Rostow. According to Rostow, “ It is possible to identify all societies in their economic dimensions, as lying in one of the five categories: the traditional society, the precondition for takeoff stage, the takeoff stage, the drive to maturity stage, and the age of mass consumption stage. Rostow believed that every country moves from one discrete state to the next. Modernization theory considered that all countries exist along various points of single developmental path. Every country fell along the same developmental spectrum. The modernization theorists maintained that the today’s developed countries have gone through all the stages of development and the developed nations were also underdeveloped at some point in time. All the nations go through the stages of industrialization and capitalism to become developed. The modernization theory runs on the assumption that underdeveloped countries are underdeveloped because they lack the requisite capital, proper institutions and ethos of entrepreneurship and rationality.

In another perspective, this model is not applied to developing countries. In the reading, the author take Japan as an example saying that they were forced to develop the skills and technologies to ensure that they can make fully use of the scarce resources due to the lack of resources in this country. On the

This theory connects with the “Catch-up Effect” or “Global Convergence Theory”, which states that “other things equal, it is easier for a country to grow fast if it starts out relatively poor, due to giving it an additional unit of capital increases the productivity only slightly if the country already has a large quantity

Moreover, it has a zero-sum game; one states gain is another states loss. Thus, nations should focus on their own interests. This theory can be used by developing countries in order to reach economic growth. For instance, China has engaged to open economy and profiting from liberal system. Thus, at the same time China supported economic national perspective through challenging conditions on all foreign investments to accomplish development.

In economic literature, this model is called capital only model. Harrod and Domar (1948) took over from Rostow, because Rostow had some unanswered questions. The model stated that saving is a certain proportion of national income and net investment is defined as the change in capital stock (K). The model further assumes that there is some direct relationship between the size of the capital stock, (K), and total GNP, (Y). This follows that any addition to the capital stock in the form of new investment will bring about corresponding increase in the flow of national output, GNP. This relationship is known in economics as the capital-output ratio. If the capital-output ratio is defined as k and assume further that the national savings ratio, s, is a fixed proportion of national output (e.g. 6%) and that total new investment is determined by the level of total savings, we can construct the following simple model of economic growth Balami (2006).

Economies grow and develop, they expand and advance, and they progress and prosper. There are phases when they decline too, and there are economies that experience continuous decay. If one considers long stretches of human history, one knows that economies (civilizations) disappeared altogether. We will not take into account such long stretches of time. We shall not consider too distant a past either. We will leave them to historians, may be, economic historians.

With this inquiry I seek to establish the role of finance in economic development as presented by Joseph Schumpeter in his book, The Theory of Economic Development, [1911]