The Theory Of Growth And Development

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According to Balami (2006) In the long run, the rate of growth of (per capita) GDP is determined by population growth and the rate of technical progress. Higher investment can speed up growth temporarily, but as the capital-output ratio rises, an increased proportion of GDP needs to be invested to equip the increasing labour force, and the capital-output ratio converges towards a finite limit, however high a proportion of GDP is invested. Low investment slows down growth, but the capital-output ratio falls towards a lower limit which is always positive for positive investment. iii) The Lewis Theory of Growth/Development According to Todaro and Stephen (2011) one of the best-known early theoretical models of development that focused on the structural transformation of a primarily subsistence economy was that formulated by Nobel laureate W. Arthur Lewis in the mid-1950s and later modified, formalized, and extended by John Fei and Gustav Ranis in 1997. The Lewis two-sector model became the general theory of the development process in surplus-labour developing nations during most of the 1960s and early 1970s, and it is sometimes still applied, particularly to study the recent growth experience in China and labour markets in other developing countries. In the Lewis model, the underdeveloped economy consists of two sectors: a traditional, overpopulated rural subsistence sector characterized by zero marginal labour productivity-a situation that permits Lewis to classify this as
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