4. Public policy and national development

4.1 CLASSICAL AND NEOCLASSICAL MODELS OF DEVELOPMENT

The classical and neoclassical models of development are economic theories that provide perspectives on the process of economic growth and development.

Classical model of development:

Key features of the classical model include:

1. Market mechanisms: The classical model emphasizes the role of free markets and the invisible hand in guiding economic development. It argues that when left to operate without interference, markets efficiently allocate resources and promote growth.
2. Comparative advantage: The classical model highlights the concept of comparative advantage, which suggests that countries should specialize in producing goods and services in which they have a comparative advantage. This specialization allows for trade, leading to increased efficiency and economic gains.
3. Laissez-faire approach: The classical model advocates for minimal government intervention in the economy. It argues that government interference in markets can hinder economic growth and development.
4. Emphasis on capital accumulation: Classical economists emphasize the importance of saving and investment in capital accumulation as a driver of economic growth. They argue that the accumulation of physical capital, such as machinery and infrastructure, leads to increased productivity and output.

Neoclassical model of development

Key features of the neoclassical model include:

1. Market efficiency and rationality: The neoclassical model assumes that markets are efficient and that individuals act rationally in pursuing their self-interests.
2. Human capital and technological progress: The neoclassical model recognizes the role of human capital and technological progress in driving economic development.
3. Role of institutions: The neoclassical model acknowledges the importance of institutions in promoting economic development.
4. Market failures and government intervention: Unlike the classical model, the neoclassical model recognizes the potential for market failures, such as externalities and imperfect information.
5. Openness to trade and foreign investment: The neoclassical model emphasizes the benefits of trade and foreign direct investment (FDI) for economic development.