Comparing Ethiopia to Other Countries - Essay Example

“According to the neo classical growth theory, output growth results from one or more of three factors: increases in labor quantity and quality, increases in capital, and improvements in technology” (Todaro & Smith, 2003 p 164). Thus, the concept of neoclassical growth theory states that growth of an economy stops when the technological change ends. A technological change leads to an increase in saving and investment and there by increases the real GDP per capita. In the context of Ethiopia the theory of neoclassical growth theory has relevance in the respect of underdevelopment.

The lack technology has pulled back Ethiopian economy from attaining development. In other words technological backwardness has contributed to the lesser growth of Ethiopia. This is clear from the GDP ratios of the country. Ethiopia’s GDP remained at “$1000 in 2010” (Human Development Report 2009: M Economy and Inequality, 2009). The Human Development Index indicates that the HDI of Ethiopia were just 0.328 in 2010. In HDI ranking Ethiopia had171st rank” (Human Development Report 2009: M Economy and Inequality, 2009). . This will increase income, savings and investments, which, in turn, can lead to economic development.

“The role of Lewis theory in Ethiopia is also showing a negative trend. The relevance of the theory in a country is highlighted when there occur a shift in the employment rate from agriculture to industry sector. The data regarding the employment in agriculture and industry of Ethiopia shows that the role of the Lewis theory in the development of a country is more relevant. The employment rate of Ethiopia in the agriculture sector during 2009 was 85% while that of industry was just 5%” (Intelligence Throughout History: Birth of Overhead Reconnaissance, 1861).

The Big Push Theory: The Big Push Theory by Paul N. Rosenstein Rodan calls for a big investment from the government’s side, for attaining economic growth in an underdeveloped country. “The Big Push is a model of how the presence of market failures can lead to a need for a concerted economy wide and probably public policy- led effort to get the long process of economic development underway, or to accelerate it” (Todaro & Smith, 2003 p 162). A big investment by the government encourages more growth in that sector, which ultimately leads to the development of that particular sector and, therefore, attracts more investment by individuals and firms.

The relevance of big push theory in Ethiopia is seen from the aid given by the government and the UN in various situations including the natural calamities. This big push has helped the Ethiopian economy in improving their HDI rank during past years. Market friendly approach: Market friendly approach was first put forward by World Bank, which gave a much