Development Theory: Rostow's Stages Of Development Model

THEORETICAL FRAMEWORK/MODEL SPECIFICATION

This study is based theoretically on the Rostow’s stages of growth model (1960).

In this [model, Rostow opined that “the transition from underdevelopment to development can be described in a series of stages through which all nations must proceed” see section 2 for detail of the stages and their characteristics.

According to Rostow (1960) developed nations are either in the drive to maturity stage or the age of mass consumption stages while the LDCs are either in the traditional society or the pre-condition for take – off stage.

This thus suggests that developed countries have arrived at the last stage of development process whereas; the LDCs are in the transition stage.

Rostow listed some requirements

He also suggested some other pre-conditions for take-off as following:

A rise in the rate of productive investment from 5 to 10 percent of the national income, The development of one or more substantial manufacturing sector with a high growth rate, and, The emergence of political, social and institutional framework which exploits the impulse to expansion.

However, taking a curious look at the above conditions as opined by Rostow, the question now is;

Can we then say that this theory is valid in the Nigerian case? If yes, to what extent? Is there any significant relationship between FDI, domestic investment and the economic growth and development of the economy? If there is, what is the nature of the relationship? This study therefore aims at providing answer to the above questions.

b. MODEL SPECIFICATION

The model of this work was built from the take-off conditions as stated in Rostow’s model. The data were transformed into their logarithm form in order to obtain their short-run elasticity

YAGR= Agricultural Productivity Index proxy for Rostow’s improvement in Agricultural productivity

Xoil= Revenue from Oil Export

IMP= Imports Proxy for capital imports

The linear form of the equation or model

RGDP= β0 + β1 FDI + β2INV + β3 YAGR + β4Xoil + β5 Imp +Ut

The Logarithm model

LNRGDP = β0+ β1LnFDI + β2LnINV + β3LnYAGR + β4LNXoil+ β5LnIMP +U

In the above model, LNRGDP is the log of real gross domestic product a proxy for economic growth and development.

The explanatory variables and their expected or a priori signs based on existing theory are provided below.

Variables Descriptions A Prior expectation

Ln FDI Log of foreign direct investment +

Ln INV Log of investment +

Ln YAGR Log of Agric productivity +

LnXoil Log of oil export +

Ln IMP Log of imports -

ECM Error Correction Mechanisms _

U Stochastic error term

Source: The Author

c. Estimation of