Decreasing Poverty and Unemployment: An Examination through the Lens of Rostow's Model of Economic Growth

By Jones, Jessica | Indian Journal of Economics and Business, April 2013 | Go to article overview

Decreasing Poverty and Unemployment: An Examination through the Lens of Rostow's Model of Economic Growth


Jones, Jessica, Indian Journal of Economics and Business


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. …

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