Decreasing poverty and unemployment: an examination through the lens of Rostow's model of economic growth.

Jones, Jessica

Abstract

This paper examines Rostow's Model of Economic Growth, expanding upon each stage and exploring how it can be used to improve the problems of poverty and unemployment. Using the model as a measurement tool, the economic development of China and India is explored, determining which specific factors enabled the countries to move through the model and what needs to be done for each to continue its growth and achieve Rostow's final stage. Likewise, the unsuccessfulness of Nepal is contrasted and compared to the success of China and India.

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In what is being called the greatest global recession since the Great Depression in the 1930's, individuals across the world are not unfamiliar with the problem of unemployment and the havoc it can wreak at the personal, state and national level. Likewise, while citizens of developed nations are learning to adjust to the hardships that accompany unemployment, those living in developing nations are no stranger to this phenomenon. According to the United Nations, since the economic crisis, more workers in the developing world and their families find themselves living in extreme poverty. As first of the eight Millennium Development Goals, "eradicating extreme poverty [and hunger]" is an important factor in achieving a better, safer and healthier global community. However, as is stated by the 2010 Millennium Development Goals Report, "newly updated estimates from the World Bank suggest that the [global economic] crisis will leave an additional 50 million people in extreme poverty in 2009 and some 64 million by the end of 2010 relative to a no-crisis scenario, principally in subSaharan Africa and Eastern and South-Eastern Asia" [United Nations, 2010]. Moreover, the report insists that "the effects of the crisis are-likely to persist: poverty rates will be slightly higher in 2015 and even beyond, to 2020, than they would have been had the world economy grown steadily at its pre-crisis pace" [United Nations, 2010]. Likewise, for the purpose of this paper, poverty is assumed to be directly linked to unemployment; therefore, the poverty statistics reported by the 2010 Millennium Development Goals Report can be interpreted as an unemployment problem. While some of the numbers concerning the poverty rate in the developing world can be discouraging, there are success stories to offer hope and potentially act as a guide to solving the problem in the countries that are lagging in progress towards poverty reduction. As the 2010 Millennium Development Goals report states, the "fastest growth and sharpest reductions in poverty continue to be recorded in Eastern Asia," with "poverty rates in China expected to fall to around 5 per cent by 2015" [United Nations, 2010]. Similarly, "India, too, has contributed to the large reduction in global poverty" [United Nations, 2010]. Using the measurement of $1.25 a day to define the poverty line, "poverty rates there are expected to fall from 51 per cent in 1990 to 24 per cent in 2015, and the number of people living in extreme poverty will likely decrease by 188 million" [United Nations, 2010]. In fact, "all developing regions except sub-Saharan Africa, Western Asia and parts of Eastern Europe and Central Asia are expected to achieve the MDG target" [United Nations, 2010]. For the purpose of this paper, special attention will placed upon the success of China and India as compared to the shortcomings of Nepal, which is located between China and India in Southern Asia. Likewise, by identifying the contrasts in the progress made by these nations in the developing world, one can recognize the importance, as well as the necessity, of understanding the phenomenon of poverty and unemployment and how both qualities can be decreased in struggling countries.

As described by the Classical Economic Theory, unemployment is a sign that smooth labor market functioning is being obstructed in some way. Following this approach, it is assumed that "markets behave as described by the idealized supply-and-demand model: the labor market is seen as though it were a single, static market, characterized by perfect competition, spot transactions, and institutions for double-auction bidding" [Goodwin et al., 2006]. Figure 1 depicts this model, in which the market is free to adjust and there is no involuntary unemployment, as individuals participating in this utopic market have to the option whether or not to join, based upon the level of wages and demand for labor. In this case, "'quantity' is not measured as a number of things but rather a quantity of labor services" [Goodwin et al., 2006]. With this model, we also" assume that every unit of labor services is the same, and every worker in this market will get exactly the same wage; thus, the equilibrium wage in this example is WE and the equilibrium quantity of labor supplied is at [L.sub.E]" [Goodwin et al., 2006]. Likewise, within the classical model, the "only way true, involuntary unemployment can exist is if something gets in the way of market forces" [Goodwin et al., 2006]. Figure 2 displays this phenomenon, with W* representing the factor that impedes the market forces, [L.sub.D] representing the number of workers employers want to hire and [L.sub.S] representing the number of workers who want employment, displaying the surplus in labor that leads to unemployment.

By understanding how and why unemployment occurs, one can approach the situation with one of several economic theories of development. Evaluating the problem of unemployment via Rostow's Model of Economic Development, this paper will examine the model and then apply it to the developing world, comparing and contrasting those countries that are on track to achieving the Millennium Development Goal of reducing poverty and those that are not. Through this examination and application, a better understanding of why some countries, such as China and India, have been successful and others, such as Nepal, have not reached the milestones necessary to achieve the Millennium Development Goal by 2015, will be identified, shining light on the main problem areas and allowing the country to know where and how to center its resources, thereby reducing its unemployment level and improving the quality of life for its citizens.

Developed by W.W. Rostow in 1960, Rostow's Model of Economic Growth is one of the most famous development theories in the field of economics. Postulating that economic growth occurs through the movement of different stages--Transitional Society, Transitional Stage, Take-off Stage, Drive to Maturity, and High Mass Consumption--that take place for varying lengths of time, Rostow's model is one of the more structured models in economic growth theory, providing a more step-by-step approach to achieving economic success. Likewise, according to the model, economic take-off must initially be led by a few sectors, which pave the way for further growth. According to the Lewis Historical Society, "Rostow's model is descendent from the liberal school of economics, emphasizing the efficacy of modern concepts of free trade and the ideas of Adam Smith." (1) Similarly, "it also denies Friedrich List's argument that countries reliant on exporting raw materials may get 'locked in', and be unable to diversify." (i) AsRostow's model states "countries may need to depend on a few raw material exports to finance the development of manufacturing sectors which are not yet of superior competitiveness in the early stages of take-off; in that way, Rostow's model does not deny John Maynard Keynes in that it allows for a degree of government control over domestic development not generally accepted by some ardent free trade advocates." (i) As a basic assumption, "Rostow believes that countries want to modernize as he describes modernization, and that society will assent to the materialistic norms of economic growth." (i) Figure 3 illustrates the stages of Rostow's model.

Traditional societies in Rostow's first stage of economic development are "marked by their pre-Newtonian understanding and use of technology." (i) As the theory states, an economy in this stage has a limited production function which barely attains the minimum level of potential output. (i) However, this does not mean that the economy's production level is stagnant, as output levels can still be increased, due to the "usual presence of a surplus of uncultivated land which can be used for increasing agricultural production." (i) Likewise, "states and individuals utilize irrigation systems in many instances, but most farming is still purely for subsistence." (i) And while technological innovations are present in these societies, they only occur on a particular basis; thus, lacking modern science and technology, the innovation that occurs spreads slowly and inconsistently and is sometimes reversed or lost. (i) Similarly, trade is predominantly regional and local, largely done through bargaining, and the monetary system is not well developed; furthermore, the investment's share never exceeds 5% of total economic production. (i) Aside from the lack of technology, wars, famines and epidemics like plague can cause initially expanding populations to pause or decline, limiting the single greatest factor of production: human manual labor.i (6) Political instability or, in some cases, lack of a political system, in general, also prevent these societies from experiencing economic growth. It is not until a society enters the second stage of Rostow's model that the groundwork begins to be laid for economic expansion.

In Rostow's second stage, known as the Transitional stage or the Pre-Conditions to Take-Off stage, the economy undergoes a process of change, which introduces it to the conditions for growth and take-off) According to Rostow, "these changes in society and the economy had to be of fundamental nature in the sociopolitical structure and production techniques" [Mishra, 2010]. As Rostow points out, there are "three important dimensions to this transition: firstly, the shift from an agrarian to an industrial or manufacturing society begins, albeit slowly;" secondly, "trade and other commercial activities of the nation broaden the market's reach not only to neighboring areas but also to far-flung regions, creating international markets," and, lastly, "the surplus attained should not be wasted on the conspicuous consumption of the land owners or the state, but should be spent on the development of industries, infrastructure and thereby prepare for self-sustained growth of the economy later on." (2) Furthermore, "agriculture becomes commercialized and mechanized via technological advancement; shifts increasingly towards cash or export-oriented crops; and there is a growth of agricultural entrepreneurship." (ii) As Rostow states, "capital formation depends on the productivity of agriculture and the creation of social overhead capital." (ii) The role of agriculture in this transition process is very important as "the surplus quantity of the produce is to be utilized to support an increasing urban population of workers and also becomes a major exporting sector, earning foreign exchange for continued development and capital formation." (ii) Likewise, "increases in agricultural productivity also lead to expansion of the domestic markets for manufactured goods and processed commodities, which adds to the growth of investment in the industrial sector." (ii)

The third stage in Rostow's model is the Take-Off stage. It is in this stage that dynamic growth occurs. As Rostow suggests, "all is premised on a sharp stimulus (or multiple stimuli) that is/are any or all of economic, political and technological change" [Mishra, 2010]. In this stage, "take-off occurs when sector led growth becomes common and society is driven more by economic processes than traditions" [Rostow, 1960]. At this point, "the norms of economic growth are well established and growth becomes a nation's 'second nature' and a shared goal" [Rostow, 1960]. As discussed by Rostow, "after take-off, a country will generally take as long as fifty to one hundred years to reach the mature stage according to the model" [Rostow, 1960].Likewise, Rostow states that there are three main requirements for take-off to occur:

1. The rate of productive investment should rise from approximately 5% to over 10% of national income or net national product.

2. The development of one or more substantial manufacturing sectors, with a high rate of growth.

3. The existence or quick emergence of a political, social and institutional framework which exploits the impulses to expansion in the modern sector and the potential external economy effects of the take-off. (3)

As the model states, "industrialization becomes a crucial phenomenon as it helps to prepare the basic structure for structural changes on a massive scale" [Rostow, 1960]. According to Rostow, "this transition does not follow a set trend as there are a variety of different motivations or stimulus which began this growth process" [1960]. In order for take-off to occur, it first" requires a large and sufficient amount of loanable funds for expansion of the industrial sector," which generally come from two sources, such as "shifts in income flows by way of taxation, implementation of land reforms and various other fiscal measures" and "reinvestment of profits earned from foreign trade" [Rostow, 1960]. While "there are other examples of 'take-off based on rapidly increasing demand for domestically produced goods for sale in domestic markets, more countries have followed the export-based model, overall and in the recent past" [Ford, 2004]. Likewise, even countries that stand as examples of "domestically based take-offs" are characterized by "massive capital imports and rapid adoption of their trading partners' technological advances" [Ford, 2004]. As Rostow discusses, this "entire process of expansion of the industrial sector yields an increase in rate of return to some individuals who save at high rates and invest their savings in the industrial sector activities," as economies" exploit their underutilized natural resources to increase their production" in order to achieve economic development [1960].

The Take-off stage also requires a "group of entrepreneurs in the society who pursue innovation and accelerate the rate of growth in the economy" [Ford, 2004]. In order for this entrepreneurial class to develop, an "ethos of 'delayed gratification'", a preference for capital accumulation over expenditure, and high tolerance of risk must be present" [Ford, 2004]. This is typically followed by the formation of entrepreneurial groups, which develop due to the lack of opportunity to rise to prominence in other manners, such as through marriage, military service or participating in other well-established industries. Lastly, to complete the stage, the "rapidly changing society must tolerate unorthodox paths to economic and political power" [Ford, 2004]. As Rostow states, in order for a country to successfully finish the Take-Off stage and move onto the next, the following factors must be present:

* Existence of enlarged, sustained effective demand for the product of key sectors.

* Introduction of new productive technologies and techniques in these sectors.

* The society's increasing capacity to generate or earn enough capital to complete the take-off transition.

* Activities in the key sector should induce a chain of growth in other sectors of the economy that also develops rapidly. (iii)

The fourth stage of Rostow's model is the Drive to Maturity stage, which is characterized as a "long interval of sustained growth" [Mishra, 2010]. During this stage a country has to "decide whether the industrial power and technology it has generated is to be used for the welfare of its people or to gain supremacy over others" [Mishra, 2010]. As Rostow notes, this stage is commonly defined as the period that occurs when a country has "effectively applied the range of modern technology to the bulk of its resources" [1962]. In this stage, the "now regularly growing economy drives to extend modern technology over the whole front of its economic activity" as about "10-20% of the national income is steadily invested, permitting output regularly to outstrip the increase in population" [Mishra, 2010]. Likewise, during the Drive to Maturity stage, the makeup of the country's economy is constantly changing as "technique improves, new industries accelerate, and older industries level off' [Mishra, 2010]. Likewise, it is also in this stage that a country" finds its place in the international economy" as" goods formerly imported are produced at home, new import requirements develop, and new export commodities [are developed] to match them" [Mishra, 2010]. This diversity leads to "reduction in poverty rate and increasing standards of living, as the society no longer needs to sacrifice its comfort in order to build up certain sectors" [Mishra, 2010]. According to the model, structural changes in society during this stage occur in three ways:

* Work force composition in the agriculture shifts from 75% of the working population to 20%, the workers acquire greater skill and their wages increase in real term.

* The character of leadership changes significantly in the industries and a high degree of professionalism is introduced.

* Environmental and health cost of industrialization is recognized and policy changes are thus made. (4)

The last stage in Rostow's model is the Age of Mass Consumption. This stage refers to the period of contemporary comfort afforded many western nations, wherein consumers concentrate on durable goods, and hardly remember the subsistence concerns of previous stages [Mishra, 2010]. Using the Buddenbrooks dynamics metaphor to describe an economy's evolution to this stage, Rostow compares each stage to one of three generations of the family in Thomas Mann's novel. As is described in the book, "the first generation is interested in economic development, the second in its position in society, and the third, already having money and prestige, concerns itself with the artsand music, worrying little about those previous, earthly concerns" [Mishra, 2010]. Similarly, in the Age of High Mass Consumption, "a society is able to choose between concentrating on military and security issues, on equality and welfare issues, or on developing great luxuries for its upper class" [Mishra, 2010]. During this stage, "each country ... chooses its own balance between these three goals," and "there is a desire to develop an egalitarian society and measures are taken to reach this goal" [Mishra, 2010].

As with any theory of economics, criticisms of the strength and validity of the points made by the author exist. As is noted by author Yoichi Itagaki, Rostow's model is "historical in the sense that the end result is known at the outset and is derived from the historical geography of a developed, bureaucratic society" [Itagaki; 2007]. Likewise, the model is also "mechanical in the sense that the underlying motor of change is not disclosed and therefore the stages become little more than a classificatory system based on data from developed countries" [Itagaki, 2007].According to Itagaki, Rostow bases the theory of his model exclusively on "American and European history and defines the American norm of high mass consumption as integral to the economic development process of all industrialized societies" [2007]. Similarly, the model "assumes the inevitable adoption of Neoliberal trade policies which allow the manufacturing base of a given advanced polity to be relocated to lower-wage regions," and therefore, in the opinion of Itagaki, "does not apply to the Asian and the African countries as events in these countries are not justified in any stage of his model" [2007]. Furthermore, Itagaki argues that the stages are not properly identified as the "conditions of the take-off and pre take-off stage are very similar and overlap" [2007]. Lastly, Rostow's model assumes that growth is automatic once it reaches the Take-Off stage, a belief that is not held by many in the field of economics, as growth is often thought to never be automatic and can only be achieved by a constant push towards it [Itagaki, 2007]. According to Itagaki, "Rostow's thesis is biased towards a western model of modernization;" however," at the time of Rostow, the world's only mature economies were in the west, and no controlled economies were in the 'era of high mass consumption'" [2007]. The model also" de-emphasizes differences between sectors in capitalistic vs. communistic societies," but it does seem to "innately recognize that modernization can be achieved in different ways in different types of economies," a redemptive quality amongst its many supposed flaws [Itagaki, 2007]. However, despite the numerous criticisms of the model, perhaps the most "disabling assumption" of the model is how Rostow tries to "fit economic growth into a linear system" [Itagaki, 2007]. As Itagaki notes, this assumption of linear progression is "false as due to empirical evidence of many countries making false starts then reaching a degree of progress and change and then slipping back", as in the case of "contemporary Russia slipping back from high mass consumption to a country in transition, the main cause being a political change and environment, as well as the emergence of the Cold War" [2007]. Furthermore, Rostow's model appears to only consider large countries with large populations and abundant natural resources or land that is available at just the right time. As Itagaki discusses, the model "has little to say and, indeed, offers little hope for small countries, which do not have such advantages" [Itagaki, 2007]. However, even with its flaws, Rostow's model continues to be one of the most well-known theories of economic growth and loosely used guideline for many developing nations, which, in conjunction with other popular theories of economic growth, provides direction as to how a country can strengthen its economy.

The success of China and India, as examined through Rostow's model, in economic growth and poverty reduction can act as a beacon of hope to other less developed countries that are still working to meet the Millennium Development Goals by 2015. Using Rostow's Model of Economic Development as a guide, one is able to follow the trends of China and India's GDP by their movement and current location within the model. Due to the ancient nature of both countries, their journies through Rostow's model begins at a very early stage of global civilization. Starting with China's Song Dynasty, which began in 960 AD, the country can be placed in Rostow's second phase of development - the Transitional stage. Entering into an era of economic prosperity, the country soon found itself in a period of "great technological development," which can be explained, in part, by the military pressure felt in the different regions due to warring dynasties. (5) Considered by many to be "classical China's high point in science and technology," this era of Chinese history saw the adaptation of Neo-Confucian philosophy as well as the enormous compilation of literary works and the flourishing of culture and the arts. (v) Suffering great wars and the Bubonic Plague through the next few hundred years, it wasn't until the Ming Dynasty in the 14th century that China would progress to Rostow's third stage of economic development--the Take-Off stage--where it would remain until the early 19th century. Marked by political change that occurred once the Ming Dynasty came into power, China also experienced an increase in urbanization as "the population grew and as the division of labor grew more complex." (6) Furthermore, "large urban centers ... contributed to the growth of private industry," as well as small-scale industries, which often specialized in paper, silk, cotton, and porcelain goods. (vi) Likewise, "foreign trade and other contacts with the outside world, particularly Japan, increased considerably" as" Chinese merchants explored all of the Indian Ocean, reaching East Africa" and the emperor "strenuously tried to extend China's influence beyond its borders by demanding other rulers send ambassadors to China to present tribute." (vi) A large navy, along with an army of one million standing troops was built, allowing China to conquer several smaller nations nearby, one of which was Vietnam. It was during these centuries that the "potential of south China came to be fully exploited," as domestic trade became stimulated due to the expansion of the Grand Canal, new crops were widely cultivated, industries flourished, and the last construction of the Great Wall was undertaken. (vi)

As author Ligang Song discusses in her paper of the history of China's economic development, "China was the largest economy until the early period of the 19th century" when its GDP plummeted due a period of de-industrialization [2009]. In fact, according to Song, the "U-shape trend [of the Chinese GDP] over the past two hundred years has been dictated by a period of de-industrialization in China since the mid-19th century, as shown by the precipitate fall of its share of GDP in the world economy, and of re-industrialization since the late 1970s, shown by the rapid increase in its share of world GDP" [2009]. As described by Song, before its GDP plummeted in the early 19th century, China could have been characterized as being in the Take-Off stage. With the exception of a change in political power, the country was experiencing a period of industrialization, growing investment and regional growth. Due to the external threat of imperialism by the British and internal unrest, such as the Taiping Rebellion (1851-1864), a quasi-Christian religious movement, followed by "one of the largest war fares in the 19th century in terms of troop involvement and the massive loss of lives," along with a string of smaller rebellions, it is no surprise that economic growth within the country came to a halt and digressed to the Transitional stage [Harper et al., 2005]. As the country moved from the Qing Dynasty, that had led China since the mid-17th century, into the modern-day Republic of China, it once again made the shift from the Transitional stage to the Take-Off stage, this time being accompanied by political change. Since the 1990's, an estimated 150 million peasants have been pulled out of poverty and the country has sustained an average annual gross domestic product growth rate of 11.2% [Song, 2009]. Likewise, China formally joined the World Trade Organization in 2001, causing some individuals to believe that it has entered into the last and final stage of Rostow's model: The Age of Mass Consumption. However, despite its economic success, there are many, including the Chinese government, who believe this rapid growth "has negatively impacted the country's resources and environment" [Griffiths, 2006]. Similarly, another concern is that "certain sectors of society are not sufficiently benefiting from the PRC's economic development, one example of this being the wide gap between urban and rural areas" [Harper et al., 2005]. As a result, "under current CPC general secretary and President Hu Jintao and Premier Wen Jiabao, the People's Republic of China (PRC) has initiated policies to address these issues of equitable distribution of resources," resulting in large improvements in living standards and expansion of freedoms for much of the population, despite the tight political control [Harper et al., 2005]. While levels of poverty and unemployment have dramatically declined within the last few decades, there are those who argue that, despite the initiatives of the government to shorten the gap between the standard of living between the rural and urban populations, the massive disparity between the living standards of the urban and rural classes indicate that China has not yet entered into the Age of Mass Consumption and will not do so until its citizens living in rural areas experience a massive improvement in their quality of life.

Much like China, the economic history of India loosely fits into and follows Rostow's Model of Economic Development. Falling somewhere between Rostow's Traditional Society and Transitional Stage, Ancient India is characterized by qualities of both stages, due mainly, in part, to the caste system. Functioning "much like medieval European guilds," the caste system "ensured division of labor and provided for training of apprentices" [Majaprana, 2001]. The caste system "restricted people from changing one's occupation and aspiring to an upper caste's lifestyle; thus, "a barber could not become a goldsmith and even a highly skilled carpenter could not aspire to the lifestyle or privileges enjoyed by a Kshatriya (person from a warrior class)" [Majaprana, 2001]. This "barrier to mobility on labor restricted economic prosperity for several levels of the caste system," and thus, despite a "significant urban population, much of India's population resided in villages, whose economies were largely isolated and self-sustaining" [Majaprana, 2001].Likewise, even with a large urban population, "agriculture was the predominant occupation of the populace and satisfied a village's food requirements" as well as" providing raw materials for hand-based industries, such as textile, food processing and crafts" [Majaprana, 2001]. As stated by Indo History, "assessment of India's pre-colonial economy is mostly qualitative, owing to the lack of quantitative information." (7) Similarly, "by the time of the arrival of the British, [India] was a largely traditional agrarian economy with a dominant subsistence sector dependent on primitive technology." (vii)

As Cambridge University historian Angus Madison reveals, in 1700, India's share of the world income was 22:6%, "comparable to Europe's share of 23.3%;" however, by 1952 that number had dropped to a low of 3.8%, taking the economy backwards towards the first stage of Rostow'smodel. (vii) As Madison states, while Indian leaders during the Independence struggle and left-nationalist economic historians have "blamed colonial rule for the dismal state of India's economy in its aftermath, a broader macroeconomic view of India during this period reveals that there were sectors of growth and decline, resulting from changes brought about by colonialism and a world that was moving towards industrialization and economic integration." (vii) Gaining independence from the British in 1947, "Indian economic policy after independence was influenced by the colonial experience (which was seen by Indian leaders as exploitative in nature) and by those leaders' exposure to Fabian socialism." (vii) The new economic policy after independence" tended towards protectionism, with a strong emphasis on import substitution, industrialization, state intervention in labor and financial markets, a large public sector, business regulation, and central planning." (vii) This period saw the economy move quickly through Rostow's second stage of economic development and into the Take-Offstage. Again, it can be debated that the economy never fully met the requirements for either stage, once again placing it in a state of limbo. Likewise, despite this period of industrialization, strict government policies on foreign trade produced a slow, dismal growth rate until the late 1980's, during which time "the government, led by Rajiv Gandhi, eased restrictions on capacity expansion for incumbents, removed price controls and reduced corporate taxes." (vii) Furthermore, in 1991 "Prime Minister NarasimhaRao, along with his finance minister Manmohan Singh, initiated the economic liberalization," which "did away with the Licence Raj (investment, industrial and import licensing) and ended many public monopolies, allowing automatic approval of foreign direct investment in many sectors." (vii) Since the economic liberalization in 1991, "India has emerged as one of the wealthiest economies in the developing world," boasting an economy that has continued to grow at a constant rate. (vii) Likewise, this growth has been accompanied by "increases in life expectancy, literacy rates and food security," along with a credit rating that was raised to "investment level in 2007 by S&P and Moody's." (vii) In 2003, "Goldman Sachs predicted that India's GDP in current prices will overtake France and Italy by 2020, Germany, UK and Russia by 2025 and Japan by 2035," and by 2035, it is "projected to be the third largest economy of the world, behind US and China." (vii)

Despite the high level of discrepancy between the lifestyles of the haves and have-nots in India, the country can still be classified as being in Rostow's fourth stage of economic development--the Drive to Maturity stage, as the country meets the basic qualifications of diversification, innovation, less reliance on imports and investment. Currently, "the economic activity in India has taken on a dynamic character which is at once curtailed by creaky infrastructure, such dilapidated roads and severe shortages of electricity, and a cumbersome justice system." (8) However, despite these setbacks, poverty and unemployment levels have consistently declined over the years and the economy has continued to be "accelerated by the sheer enthusiasm and ambition of industrialists and the populace." (viii) As authors Isobel Doole and Robin Lowe discuss, the Indian steel industry began expanding into Europe in the 21st century, and "in January 2007 India's Tata Steel made a successful $11.3 billion offer to buy European steel maker Corus Group" [2008]. Likewise, "in 2006 Mittal Steel (based in London but with Indian management) acquired Arcelor for $34.3 billion to become the world's biggest steel maker, Arcelor Mittal, with 10% of the world's output" [Doole & Lowe, 2008]. However, although the steel industry contributed largely to the country's economic success, "the main economic achievement of the government was the universal license in telecommunication field, which allows CDMA license holders to provide GSM services and vice versa." (viii) Investments in construction have also contributed to economic growth, the largest of which being the "Golden Quadrilateral road network connecting main metros of Delhi, Chennai, Mumbai and Kolkata." (9) The project, which was completed in January 2012, was one of the "most ambitious infrastructure projects of independent India" [Doole & Lowe, 2008]. Figure 4 displays the predicted economic growth of both India and China with regards to that of the United States, suggesting that the two countries have, in fact, reached the fourth stage of Rostow's model and will continue forward to reach the fifth stage, putting them on par with the United States and the rest of the Western World.

Nestled between the quickly growing economies of China and India is Nepal. Described as an "isolated, agrarian society until the mid-20th century," Nepal" entered the modern era in 1951 without schools, hospitals, roads, telecommunications, electric power, industry, or civil service." (10) However, despite its delayed economic growth in the modern world, the country has "made progress toward sustainable economic growth since the 1950s and is committed to a program of economic liberalization." (x) Considered a stage one country until 1950 by Rostow's model, Nepal has since moved forward to Rostow's second stage of economic development, and that is arguably where it continues to remain today, despite a regularly changing political environment. Likewise, in spite of the country's move towards industry and growing infrastructure, "agricultureremains Nepal's principal economic activity, employing 80% of the population and providing 37% of GDP." (x) And while the traditional agriculture sector may be contracting, much of the newly developing service and industry sectors are still closely tied to it. According to the World Bank, "industry [in Nepal] mainly involves the processing of agricultural produce, including jute, sugarcane, tobacco, and grain." (11) However, agriculture-independent sectors continue to increase, as many "major towns are now connected to the capital by telephone and domestic air services." (xi) Likewise, "the export-oriented carpet and garment industries have grown rapidly in recent years and together now account for approximately 70% of merchandise exports." (x) Despite an increase in the industry and service sectors, the country's "workforce of about 10 million suffers from a severe shortage of skilled labor," making economic development difficult and continuously slowing progress. (xi) Furthermore, a "GDP dependency on India" has slowed economic development in social services and infrastructure. (xi) Figure 5 displays the GDP growth of Nepal since 2002.

Although Nepal is located near the bottom of Rostow's model, recent economic growth provides promise for advancement towards the Take-Off stage. As news source ktm2day states, a "huge number of Small Foreign Investment comes to Nepal via the Non Resident Nepali, who are investing in Shopping Mall, Plaza, Real Estate Business, Tourism etc." (12) Likewise, "Nepal's merchandise trade balance has improved somewhat since 2000 with the growth of the carpet and garment industries." (xii) In the 2000-01 fiscal year, "exports posted a greater increase (14%) than imports (4.5%), helping bring the trade deficit down by 4% from the previous year to $749 million," with "exports to the EU account [ing] for 46.13 percent of the country's total garment exports." (xii) Similarly, along with strong export performance, "tourism and external aid have helped improve the overall balance-of-payments situation and increase international reserves." (xii) However, despite its movement towards Rostow's third stage of economic development, there are some who believe the country will never fully reach the Take-Off stage, and, if it does, it will not be able to move past it into the fourth and fifth stages of economic development because of its geographic nature, weather patterns and a population that is increasing at a faster rate than the GDP. As is stated by the CIA World Fact Book. "Nepal remains isolated from the world's major land, air and sea transport routes although, within the country, aviation is in a better state, with 47 airports, 11 of them with paved runways," providing frequent flights capable of carrying sizeable traffic. (xiii) Likewise, "the hilly and mountainous terrain in the northern two-thirds of the country has made the building of roads and other infrastructure difficult and expensive." (13) As is discussed by ktm 2 day, "the annual monsoon rain, or lack of it, strongly influences economic growth." (xii) Likewise, according to a 2011 report by the International Food Research Institute, "only about 20% of the total area is cultivable; another 33% is forested; most of the rest is mountainous." (14) Furthermore, "population pressure on natural resources is increasing," as over-population is already straining the 'carrying capacity' of the middle hill areas, particularly the Kathmandu Valley, resulting in the depletion of forest cover for crops, fuel, and fodder and contributing to erosion and flooding." (xiii) Similarly, although the "proportion of poor people has declined substantially in recent years ... the income distribution remains grossly uneven," causing many Nepali citizens to move to other countries to find work as "the rate of unemployment and underemployment approaches half of the working-age population." (15) Figure 6 displays these factors and where Nepal currently stands on the Global Competitiveness Index.

Poverty and unemployment are not issues that normally resolve themselves. Therefore, approaching these issues with a model for economic growth, such as Rostow's, is not only intelligent but necessary in order to make dramatic changes. Looking at the elements that have led to economic success in China and India, one can follow their progress through Rostow's model and identify what aspects of development Nepal needs to improve upon in order to achieve growth. Despite changing regimes, China and India have experienced relative political stability for the last several decades, a luxury Nepal has not had. Likewise, both China and India have increased and improved infrastructure, allowing the countries to increase industry productions, creating more jobs, and expand outwards, increasing their export sectors. As was discussed, Nepal is still in the early stages of building new and improving old infrastructure; being an extremely important factor in the growth an economy, the country must first achieve a high level of infrastructure before it can focus on growing industry and creating jobs. Likewise, being that a large majority of Nepali citizens live in rural areas, an increase in infrastructure is necessary in order to connect rural and urban areas; this, in turn will help to grow industry and expand urban centers. As Rostow's model displays, once the foundation of infrastructure has been laid, movement towards the Take-Off stage can begin. Similarly, since Nepal has already achieved specialization and surpluses with its textile industry, it should be able to move into the Take-Off stage after increasing and improving its infrastructure. As is displayed by Rostow's model, recognizing the specifics for economic growth is necessary in order to improve a country's economic standing. Thus, by comparing and contrasting the economic success of China and India with the shortcomings of Nepal, one is better able to identify the main factors preventing the country from achieving economic growth as well as understand the phenomenons of poverty and unemployment, thereby identifying how they can be decreased.

References

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Notes

(1.) Rostow's stages of development vs. self-sufficiency. (2011, January 04). Retrieved from http: //www.lewishistoricalsociety.com/wiki/tiki-print_article.php?articleId=66

(2.) The rostow model. (2013). Retrieved from http://www.slideshare.net/geographyalltheway/ ib-geography-develpent-rostow-model

(3.) Rostow, W. W. (1962). The stages of economic growth.(p. 2, 38, 59). London: Cambridge University Press.

(4.) Mishra, P. (2010). Economics of development and planning--theory and practice. (pp. 127-136). Mumbai: Himalaya Publishing House.

(5.) Song dynasty. (2013). In Encyclopaedia Britannica. Retrieved from http://www.britannica.com/ EBchecked/topic/573875/Song-dynasty.

(6.) Ming dynasty. (2013). In Encyclopaedia Britannica. Retrieved from http://www.britannica.com/ EBchecked/topic/573875/Song-dynasty.

(7.) Economic history of india. (2008). Retrieved from http://www.indohistory.com/ economic_history_of_india.html

(8.) Business and Corruption Portal. (2011). India country profile. Retrieved from http:// www.business-anti-corruption.com/country-profiles/south-asia/india/corruption-levels/judicial-system/

(9.) Govt declares golden quadrilateral complete. (2012, January 07). The Indian Express. Retrieved from http://www.indianexpress.com/news/Govt-declares-Golden-Quadrilateralcomplete/896873/

(10.) Ease of doing business in nepal. (2013). Retrieved from http://www.doingbusiness.org/data/ exploreeconomies/nepal/

(11.) Nepal. (2013). Retrieved from http://www.worldbank.org/en/country/nepal

(12.) EU is largest buyer of Nepali garments. (2011, October 11).ktm2day. Retrieved from http://www.ktm2day.com/2011/10/11/eu-is-largest-buyer-of-nepali-garments/

(13.) The world fact book. (2013). Retrieved from https://www.cia.gov/library/publications/theworld-factbook/geos/np.html

(14.) International Food Research Institute, (2011). Global hunger index--the challenge of hunger: taming price spikes and excessive food price volatility. Retrieved from Washington D.C. website: http://www.ifpri.org/sites/default/files/publications/ghi1

(15.) The World Bank, (2011). Migration and remittances factbook 2011. Retrieved from The International Bank for Reconstruction and Development / The World Bank website: http:// siteresources.worldbank.org/INTLAC/Resources/Factbook2011-Ebook.pdf

JESSICA JONES, Josef Korbel School of International Studies, E-mail: jessicarjones1987@gmail.com Figure 5: Recent Economic Growth of Nepal 2002/03 3.77 2003/04 4.41 2004/05 3.23 2005/06 3.73 2006/07 2.75 2007/08 5.80 2008/09 3.95 2009/10 3.53 http://www.euromoneycountryrisk.com/Wiki/Nepal Note: Table made from line graph.