What is a political and economic theory which states the trade is an engine to generate wealth?

development theory, cluster of research and theories on economic and political development.

The emergence of development theory

The use of the term development to refer to national economic growth emerged in the United States beginning in the 1940s and in association with a key American foreign policy concern: how to shape the future of the newly independent states in ways that would ensure that they would not be drawn into the communist Soviet bloc. Motivated by this concern, the United States enlisted its social scientists to study and devise ways of promoting capitalist economic development and political stability in what was termed the developing world. Development theory refers to the research and writing that resulted from this effort.

There are different conceptions of development and, consequently, disparate approaches to the subject. However, all approaches are concerned with the relationship between development and governance. Development is usually seen as crucially determined by structures of governance; governance is interpreted through and shaped by the goal of development. Most development theory equates development with national economic growth and sees the state as its primary agent; consequently, one of its central concerns is to understand and explain the role of the state in development and the nature of government-market relations. Because these explanations relate development outcomes to the extent and form of the state’s role in development, there is a close relationship between development theory and practice.

Development theory has changed over time with changes in ideology and the international environment, and, as it changes, so do its conceptions of development and governance and how they are related. Changing conceptions of governance and its relation to development can be traced through the major perspectives on development that have emerged since World War II, as represented by theories of modernization and growth, dependency and world systems theories, the resurgence of neoclassical theory, and an array of newer critical perspectives.

Theories of modernization and growth

Development involves innumerable variables, including economic, social, political, gender, cultural, religious, and environmental factors. But though development theory integrates concepts and perspectives from a range of disciplines, it was highly influenced by economic thought from the start. Early theoretical models of development equated development with economic growth and industrialization, and theorists saw countries that had not yet achieved these as being at an earlier or lower stage of development relative to Europe and North America. The most influential proponent of this view was the American economic historian Walt W. Rostow. His 1960 book, The Stages of Economic Growth: A Non-Communist Manifesto, elaborated a linear-stages-of-growth model that defined development as a sequence of stages through which all societies must pass. This conception of the nature and process of development became the basic blueprint for modernization theory.

Modernization theory emerged following World War II to address the issue of how to shape the economies of states emerging from European colonization. Its implicit aim, as the subtitle of Rostow’s book makes clear, was to shape the development of these countries along capitalist lines. Modernization was, thus, conceived of as the relations of production and standards of living characteristic of western Europe and the United States. In line with Rostow’s model, modernization theorists treated underdevelopment as a stage common to all developing countries and a result of weaknesses in the various factors of production—land, labour, and capital. Theorists emphasized increased savings and investment as the key to development and argued that international trade in products particularly suited to national factor endowments would enable more efficient resource allocation and greater earnings, and these could be translated into savings and then used to promote development. Theorists envisioned that—by disseminating technology, knowledge, managerial skills, and entrepreneurship; encouraging capital inflow; stimulating competition; and increasing productivity—foreign trade, together with foreign investment and aid, would be the engine of growth for developing countries.

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