Capital Formation and Economic Growth in Developing Countries

INTRODUCTION Extremely rare is the occasion in which economists are in agreement regarding an economic matter, but the general acceptance of the term underdeveloped in referring to non-industriaized poor countries by most economists is remarkable. The concept of an underdeveloped country has been created to contrast it to backward or poor” country. And very recently, the term developing” country, which we shall adopt in this study, seems to be gaining more and more support from economists. This shift to dynamic developing country implies the judgment that the designated countries are likely to experience development. The use of this term by the poor countries themselves suggests their awareness of their retardation and the acceptance of this term by advanced countries signifies their acknowledgment of the implications - that those countries should develop, and that those countries have the right to demand higher standards of living, and a bigger share in the good things in life and greater equality of opportunity. The emergence of this issue into prominence found economic theory poorly equipped to deal with this problem. Recently, many economists have attempted to formulate theories suitable to analyse the problems of developing countries. Despite the rapidly growing literature, economic theory regarding this subject is, however, still under-developed . Some theories are restricted to specific areas such as monetary problems, and are thus too narrow and unrealistic. In their effort to be more realistic, others have invaded the fields of other social disciplines so that their theories have become too broad and vague. Professor Rostow\u27s attempt to design a growth model through the interaction of six basic propensities is an example. His six basic propensities are too broad and too vague to handle. However, his three-stage model is very handy, suggestive and manageable. It will be outlined here