The stages of economic growth
Every society passes through the same five stages on the way to a modern economy, and the one that matters is a short take-off in which investment roughly doubles as a share of national income.
W. W. Rostow · Credits and sources ↓
What it says
Rostow's argument is that economic history has a shape, that the shape is the same everywhere, and that a country can be located on it. Five stages: traditional society, the preconditions for take-off, the take-off itself, the drive to maturity, and the age of high mass consumption. The take-off is the hinge. Rostow set three conditions for it, and the first is a number: net investment rises from around five per cent of national income to over ten.
The appeal to a planner is obvious. If the sequence is universal, then a poor country is not a different kind of thing from a rich one, only an earlier version of it, and the task is to supply the missing ingredient. That ingredient is capital. Aid, in this account, is not charity; it is the push that gets a country over the investment threshold, after which growth becomes self-sustaining.
The subtitle is doing work. Rostow wrote in 1960 against a Marxist account of history that also had stages, also claimed universality, and also promised industrialisation. He was offering the same promise without the revolution, and he was offering it to governments deciding which side of the Cold War to stand on. The theory travelled inside American foreign policy because it was built to.
Drawn one step at a time
The theory as a graph, revealed a layer at a time. Use the buttons, or the left and right arrow keys. Each step adds the boxes that step introduces and the arrows into them.
- Starting condition
- Mechanism
- Outcome or policy
Four placements, and the reason for each
The four scores are editorial. They run from -3 to +3, they were assigned by the ImpactMojo editorial team from the theory's own texts, and each theory page shows the sentence that justifies its placement so the placement can be argued with. They are a way of arranging a shelf, not a measurement.
Rostow assumes a mixed economy and is not doctrinaire about ownership, but the growth comes from private investment in leading sectors, with the state supplying the framework.
As far towards grow-first as the shelf goes. Mass consumption is stage five; distribution is what a mature economy can afford, not a route to maturity.
Caste, race and gender are absent from the model. Traditional society is characterised by its production function, not by who is allowed to own or learn.
The agents are a new elite, a centralising state and the entrepreneurs of the leading sector. Nothing in the sequence requires anybody poor to organise.
The theory against the record
Each entry takes one claim the theory makes and reports what the evidence says about it, with a named source and a year. This section is the reason the library exists; a catalogue of positions without it is a reading list.
The claim Take-off shows up in the data as a sharp rise in the investment rate.
Simon Kuznets went looking for the discontinuity in the historical national accounts and did not find it. Capital formation rose gradually in the countries Rostow cited rather than roughly doubling over two decades, and the dates Rostow assigned to each country's take-off did not line up with the dates the investment series suggested.
Simon Kuznets, 'Notes on the Take-Off', in W. W. Rostow (ed.), The Economics of Take-Off into Sustained Growth · 1963
The claim Latecomers repeat the path the first industrialisers took.
Alexander Gerschenkron's comparative work on Europe found the opposite pattern: the later a country industrialised, the more it substituted for what it lacked. Britain financed industry from retained profits, Germany used investment banks, Russia used the state budget. The sequence was not repeated; it was replaced.
Alexander Gerschenkron, Economic Backwardness in Historical Perspective · 1962
The claim Raising the investment rate is sufficient for sustained growth.
India ran the experiment. Gross domestic saving and investment rose substantially across the plan decades while growth per head stayed near one and a half per cent a year into the 1970s, a rate slow enough to acquire a nickname. Capital went in; growth did not follow at the rate the model implied.
Raj Krishna's phrase 'the Hindu rate of growth' dates from 1978; the underlying series are in the Reserve Bank of India's national accounts · 1978
What this does not settle
The model has not been rescued, but neither has the question it asked been answered. Something does change when a country's growth becomes self-sustaining, and Rostow was asking about it in a form that could be tested, which is more than can be said for most of what surrounded him. What the evidence rules out is the specific mechanism, the universal sequence and the timetable. What it leaves open is whether there is any threshold at all, and the growth-diagnostics literature that replaced stage theory is still arguing about it.
How it landed here
Rostow's arithmetic and the Second Five Year Plan's arithmetic point the same way and come from different places. The Plan's target of lifting the savings rate is the take-off condition in all but name, and Indian planners of the 1950s read Rostow. But the Mahalanobis model that actually shaped the Plan is a different machine, concerned with the composition of investment rather than its level, and it prescribed heavy industry for reasons Rostow's leading-sector argument does not supply.
One that agrees, one that does not
Planning for the capital goods sector
Both make capital accumulation the engine and the state the organiser. Mahalanobis asks where the investment should go; Rostow only asks how much of it there is.
Dependency and unequal exchange
Rostow's external shock is what starts development. For dependency theory the same contact is what prevents it.
Whose theory this is
W. W. Rostow 1916–2003
American economic historian, later National Security Advisor to Lyndon Johnson and among the most committed advocates of the war in Vietnam. The two facts belong together: the book's subtitle is A Non-Communist Manifesto.
What ImpactMojo added
The causal diagram, the four placements and the notes justifying them, and the evidence section: what each claim predicted and what the record shows, with a named source and year for every entry.
ImpactMojo · content CC BY-NC-ND 4.0 · code MIT
Start with these
- W. W. Rostow, The Stages of Economic Growth: A Non-Communist Manifesto (1960). Chapter 2 sets out the five stages; chapter 4 gives the three take-off conditions.
- Alexander Gerschenkron, Economic Backwardness in Historical Perspective (1962). The substitution argument, and the strongest historical case against a universal sequence.
- Simon Kuznets, Notes on the Take-Off (1963). The empirical test, published in a volume Rostow himself edited.
Development Discourses, the open-access reference library, holds no entry that bears directly on this theory. Browse it at impactmojo.in/devdiscourses.