Assignment-1

Rostow’s Stages of Growth (Model)

The model postulates that economic growth occurs in five basic stages, of varying length:

 Traditional Society: This stage is characterized by a subsistent, agricultural

based economy, with intensive labor and low levels of trading, and a population that
does not have a scientific perspective on the world and technology.

Determinants (1947-1951):

 Zero money markets.

 Zero banking sectors.
 Technology was limited.
 Almost wholly a "primary" sector economy.
 Lack of Education.
 Low living Standards.
 Governance Issues.
Pakistan was a Conventional society. It lacked Industrialization, Medical facilities,
Education (only 20 convent schools out of the total 25,000 in the sub-continent), a
commercial banking system, etc. It had managerial issues. East Pakistan was our 51%
trading partner. We did not devalue our currency as we didn’t not want to copy India. In
1950’s we provide food and raw materials during the Korean War to South Korea. Smaller
non-Muslim and Muslims communities started trading committees and organization.

 Preconditions to Take-off: Here, a society begins to develop manufacturing,

and a more national/international, as opposed to regional, outlook.

Determinants (1951-1959):
 Infrastructure Development (Irrigation, canals, ports like Bin Qasim).
 Money markets (Habib Bank, First Commercial Bank).
 Fiscal and Monetary Policy.
 Specialization.

 Production was Surplus.

 Increasing spread of technology and advancements in existing technologies
 Investment Inflow. (We received Aid till 1965).
Green Revolution protected Industrialists, Tax exemptions on expansion. 1956-1964 was
the Golden Period of Industrialization for Pakistan. Large scale manufacturing growth was
average 9.5% and in 1958-1959 it was 29.5%. Economic growth rate was 7.5% in 1963.

 Take-off: Rostow describes this stage as a short period of intensive growth, in which
industrialization begins to occur, and workers and institutions become concentrated
around a new industry. Stable exchange rate.

Determinants 1959 to 1968, Post Take off 1978 onwards:

 Urbanization increases, industrialization proceeds, technological breakthroughs occurs.
 Regional Economic Growth.
 Pro investment monetary policies.
 No aid was given in 1965, 1966, and 1971 due to wars. We nationalized those industries
that would benefit us. 1972-1977: Bhutto Years: EG 4.4%, Agro-growth 2.4%,
Manufacturing Growth 5.6%, Inflation rate 16%. Bhutto suffered stagflation.
Nationalization took place first in the large-scale manufacturing sector. Banks and
insurance companies were nationalized. Pakistan’s currency was devalued by 131%.
Nationalization led to complete reversal of public and private investment. 81% from
private sector in late-60s to 15% in the mid-70s. Entrepreneurs were unlikely to invest,
Industrial lock-downs. Bad luck factors; Lost East Pakistan which contributed to the GDP
of Pakistan, Massive Flood hits Pakistan 1973, did not witness rainfall in two years,
Four-Fold increase in international oil prices, World recession followed by OPEC rise,
Huge Failure of cotton crop by as much 25%, and Worst flood in Pakistan’s History in
1976-1977. Poverty Increased to 49%. 1976 we received large amounts of aid.

 Drive to Maturity: This stage takes place over a long period of time, as standards
of living rise, use of technology increases, and the national economy grows and
diversifies.

Determinants (Never Reached):

 IT Society.
 Stable Economic Growth.
 More of a Consumer-oriented.
 Health and Education improved

 Age of High Mass Consumption: Here, a country's economy flourishes in

a capitalist system characterized by mass production and consumerism.
 Determinants:
 Consumers typically have disposable income, beyond all basic needs, for additional
goods.

 Mortgages.

 AAA Bond security investments.

 Internet Banking.

 Credit Card Crunch.

 Urban Society.

Submitted By:
Khuram Ahmer(15991)
Mir Faisal(19146)