Characteristics of Growth in the Middle Stage

Characteristics of Growth in the Middle Stage

1. Capital formation increases gradually:

The proportion of capital formation to the national income also varies from one country to another and from time to time, but it is quite high in the middle stages of growth. In India during 1969-70, it was 39.9 percent while at other times it has been between 30 and 33 percent. In Japan during the 1950s and 1960s, this percentage ranged from 40 to 45 percent. The average for all over the eighties was 32 percent in Korea, 25 percent in Brazil, and 35 percent in Mexico [Athar Hussain]

2. Some particular sectors like mineral exploitation and manufacturing expand rapidly:

During recent years (during 1960-90) mining industries showed a very rapid expansion in India. Between 1970-71 and 1980-81, their share in the Gross Domestic Product (GDP) increased by almost 20 percent while that of manufacturing industries increased by 12.6 percent. The petroleum sector also grew rapidly during this period.

3. Relative increase in public sector activities:

A substantial expansion was taking place simultaneously in the public sector which accounted for about 10 percent of GDP at this stage. There is no doubt that it contributed to producing positive results for development through its investments, supply of financial resources to the private sector, alleviation of poverty, employment opportunities, etc.

4. Agricultural growth accelerates:

Another important aspect is the rapid growth recorded by agriculture in the three cases mentioned above. It was mainly because of their availability of irrigation facilities, easy availability of credit, high investment rates in agriculture, and improvement in agricultural techniques.

4. Higher rate of growth continues for longer duration:

As stated by Lewis, during this stage “the share of primary sector reduces at a faster rate than the size of the total economy and that of secondary sector increases”. This is mainly because of the relatively high rate of capital formation and output per worker, resulting in a rising share of the secondary sector. (Refer Fig-2)

5. Slowdown in population growth:

There is a clear indication that during the middle stage, the rate of increase in population slows down considerably. On taking an average for all regions during 1950-75, it was 1.7 percent per annum compared to 2.1 percent p.a. for a corresponding period up to 1900 and 1.3 percent p.a between 1975 and 2000s. So the slowdown in population increases occurs but later becomes noticeable during the initial stage. [Athar Hussain]

6: Unemployment falls:

When we take into account government-sponsored programs providing employment opportunities,

we find that unemployment falls significantly. This is because of the increasing number of jobs created by industrialization, growth in agricultural production, and employment opportunities offered by new projects initiated at this stage.

7: Domestic savings rate increases:

The important indicator which varies widely from country to country is the domestic savings rate. However, it has been noticed that during the middle stages the savings rates are quite high as compared to other development phases. For example, India’s average annual domestic saving rate was 23 percent of GDP during the 1950s-60s while Japan’s was around 25 percent. High trend

8: Government expenditures increase:

Another significant feature of the growth process at this level would be an increase in government expenditure mainly on social services. This is mainly because of the development of public sector activities, improvement in infrastructure facilities, health care, education, etc.

As stated by Lewis the share of government expenditure on social services (education etc.) increased from about 5% during 1900-50 to 15% during 1950-90.

9: Capital formation increases more than proportionately:

During the middle stage more capital is accumulated as compared to earlier stages which results in a higher growth rate of output per worker and labor productivity. According to Lewis “the ratio between investment (gross fixed investment plus net acquisition of nonproductive assets) and national income rises rapidly”.

As seen above net capital formation had more than doubled between the 1950s-60s and the 1970s-80s both in Japan and India. It was almost three times higher in China during the 1970s-80s but somewhat lower than in India.

This is because of the greater emphasis on capital formation by the Chinese government at a later stage. It has been observed that the rate of growth in total factor productivity (TFP) declines or remains stagnant during the middle stage which means an increase in efficiency/productivity gains due to an increasing base already created.

10: Share of exports increases further:

During this phase, the share of exports increases significantly as compared to earlier periods due to increasing demand for primary products like minerals, oil, etc., plus the creation of marketing channels and support by government policies.

However, contrary to expectations, it declined slightly after 1975-80 mainly due to an increase in import substitution. An increase in domestic production and market expansion meant that demand for different types of primary products declined.

11: Gender gap starts narrowing:

Since the process of economic development leads to greater urbanization, women are increasingly becoming involved in non-agricultural activities. This results in a decline in the gender gap between men and women. For example, according to UN data on labor force participation rates, the percentage of women workers increased from 18.8 percent in the 1950s to 52.2 percent during the 1990s.

12: Education level increases significantly:

During the middle stage, both enrolment rate as well as literacy rate increase fast which continues till late stages too due to greater societal awareness about the importance of education, availability of financial resources, etc., making it possible for people to avail themselves education facilities easily.

13: Employment pattern changes significantly:

As the economy shifts towards manufacturing and services, employment patterns change too. People are increasingly involved in non subsistence activities which results in an increase in wage/salary jobs as compared to earlier periods when the majority of workers were self-employed. During the late stage, the employment pattern is dominated by wage/salary jobs while agriculture still accounts for a significant portion of the workforce.

14: Labour productivity increases rapidly:

Since the economy is more developed at this phase, there is more mechanization which leads to higher labor productivity. Due to technological advances, combined with increased capital formation labor productivity has been rising quickly during the middle phase of development.

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