Economic development has been influenced by four different major theories that talk about how change is best accomplished. The theories are the Linear Stages of Growth theory, the Structural Change theory, the Neoclassical Counter Revolution theory and the New Growth theory.
The linear stages of growth model is something like the Marshall Plan, which was used to rebuild the war-torn countries of Europe after the war. This theory basically believes that industrialization is the key to the economy’s prosperity and progress. Moreover, according to this theory, industrialization can be achieved by increasing capital as much as possible together with the community. This is their way of developing one’s economy and motherland.
The Harrod-Domar model is also a major part of this theory. It talks about the rate of growth of a nation in a mathematical manner. It is actually based on the savings and income of the state.
Unfortunately, this theory does not work in some instances because it is not a sufficient condition and it focuses too much on investing in capital.
On the other, the structural change theory mainly focuses on the process wherein nations develop their economy by drastically urbanizing and modernizing their manufacturing and service sector. A great example of this kind of transformation is the Lewis Theory of Development. It explains that underdeveloped nations are divided into two namely, traditional and modern sectors. Traditional sectors usually have zero marginal labor productivity while modern sectors are the opposite, which have high-level productivity. This theory generally focuses on the method where labor is shifted and the continuous progress of production and employment in the modern sector. Basically, this theory revolves around how an economy can avail and take advantage of a self-sustaining progression. Elimination of reliance on export goods and other economies are keys to success.