traditional, neoclassical school of economic modeling prescribes a "recipe for economic growth." Economic growth is a process of moving resources from low growth, agricultural areas to higher growth, industrial areas. The neoclassical school also does not see anything slowing the progress of moving from low growth to high growth areas. The neoclassical model in the form of Harrod-Domar model assumes that an increase in savings and investment will lead to economic development. Even though productivity is improved employment does not increase and income does not improve so correspondingly demand for products does not occur. Government intervention has hampered economic development by funneling resources into the wrong types of industries. Instead of taking advantage of industries where a country has a relative advantage, resources have gone to industries that the government wants to develop. One area where the removal of restrictions is essential is in the area of international trade. Increasing exports takes the place of the typically low demand for products in developing countries. In the developing country itself the government needs to stop funding particular industries to the detriment of other industries. Further the government needs to create a favorable environment for use of technology and reinvestment of capital generated by industry. However governments are so full of bureaucracy and therefore corruption that they create another problem. This is another reason for limited the role of government.
Typically economic growth is measured using the Gross National Product (GNP). This number represents the total goods and services generated by the country's economy. An increase in GNP indicates economic growth. Focus solely on economic growth fails to take into account the affects of this growth on particular groups of individuals. The movement of jobs from one sector to another may put an entire group out of work.
Adelman identifies "three fallacies in development theory." First, theorists have assumed that by solving a single problem, "loosening one constraint," economic development will expand. The causes of limited economic development have multiple causes. Loosening one constraint may facilitate short-term economic development, but other constraints must be considered for longer-term development. Second, measuring the performance of economic development success solely on the basis of GDP growth fails to for other success criteria, particularly human welfare. Factoring in human costs, such as the dislocation of people, provide a better model for monitoring economic development strategies. Third, the same function of production applies to all countries regardless of their existing social, political, and economic conditions. Individual countries must be given the ability to adjust their approach to economic development depending on their current social, political, and economic conditions that will change over time.
Traditional economic theory views rural-urban migration as a necessary process in economic development. Typically traditional theory identifies two sectors, the agricultural sector and the industrial sector. Countries begin with population heavily weighted toward the agricultural sector. People in the agricultural must be freed up to move to the developing industrial sector. The agricultural sector must also generate profits and exports to supply the industrial sector. Reducing labor-intensive agricultural activities through improved agricultural practices allows this migration from rural-urban to begin. As the industrial sector develops the agricultural sector needs to be encouraged to produce more food for the growing industrial sector. This is accomplished through an increase in farmers' profits that allows farmers to consume more goods produced by the industrial sector.
There are at least three reasons why rural-urban migration may result in more problems in developing countries. First, the higher apparent wages offered in urban jobs do not necessarily mean that the real wages for urban jobs is higher than in rural jobs. As wages for industrial, urban jobs increases wages for rural jobs tend to grow more slowly if at all. However the high unemployment in developing countries needs to be taken into account. The high apparent wages for urban jobs may seem to be much higher than rural jobs, but this is not true where unemployment is high. Second, focusing strictly on urban labor demand will cause unemployment to increase. Reducing or slowing the rate of urban wage increases will slow the urban-rural real wage differences. If real urban wages continue to grow faster than real rural wages the migration will continue making the urban unemployment situation even worse. The other side of this answer is that there needs a focus on development of rural employment. This is another…