All economies evolve and develop over time and there have been many theories developed over the years that have attempted to give both descriptive and predictive explanations. One of the more widely accepted theories was Rostow’s linear stages of growth model, modified from Marx’s stages theory of development, focusing upon the accumulation of capital through the utilization of both domestic savings and foreign investment as a means of creating economic growth and development.1 The Rostow model postulates that an economy goes through five stages of development – the traditional society, the pre-conditions of take-off, the take-off, the drive to maturity, and the age of mass consumption.2
However other economists pointed out that that capital accumulation is not a sufficient condition one its own for development and other cultural, political, social, institutional and geographical factors are also important in creating the right conditions for development.
Michael E. Porter postulated a linear stage model emphasizing a nation’s type of development drivers as a source of competitive advantage.3 Porter postulated that a factor driven economy gains its competitive advantage from natural resources, favorable conditions for growing crops, and low cost labor sources, an investment driven economy from the willingness of firms and individuals to invest in modern plant, equipment, and technologies, an innovation driven economy based on firms creating novel processes, products, and business models, and a wealth driven economy (also one in decline) where investment is based on accumulated capital in low risk ventures and activities like shopping centers.
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Via Chuck Sherwood, Senior Associate, TeleDimensions, Inc