Development occurring within the Rostow model begins at the first stage, the traditional economy. Within stage 1 the economy is basically reliant upon the agricultural community and thus labour has little time to work within any other fields. The economy has a lack of capital and a poor education system and thus labour is unskilled and only able to work within the primary sector. There is no real capital formation and there is limited savings thus the amount of investment within the nation is restricted apart from within the agricultural sector. The countries of Ethiopia and Somalia are clear examples of this, in order for development to occur the economy increase the amount of capital that it receives.
In order for the economy to receive capital there is an increase in foreign investment within the country and thus leads the stage 2 of the Rostow model. In the second stage, preconditions for take off, there is an increase in foreign investment into the agricultural area. Development within the agricultural changes from subsistence to commercial and thus leads to some capital formation which introduces investment into infrastructure. If commercial development does occur it will mean that the government will be able to introduce tax and thus spend expenditure upon education, welfare, infrastructure and injections into the economy. A nation within the second stage of the Rostow model is the Philippines, but the economy still needs more development in order for it to be self-supporting.
In order for a nation to have a self-sustaining economy the third stage of the Rostow model influences the increase of Secondary Sector employment leading the increase of development within a country. In Stage 3, take off, investment acts as a stimulus for more investment and leads to strong growth in foreign investment, and foreign investors take advantage of the low wage rates. The economy begins to diversify and the secondary sector employment increases dramatically but there is still limited growth within the service industry. There is an increase within government expenditure and it leads to large-scale investment in infrastructure, which increase economic stimulus. Vietnam and Thailand are good examples of nations currently within stage 3 of the Rostow model.
The fourth stage of development within the Rostow model, the drive to maturity, is a clear motive for a nation to eventually have a self-supporting economy. In the fourth stage the economy becomes increasingly diversified and is less reliable upon foreign investment because there is enough capital formation within the country. The multiplier effect becomes active within the fourth stage and it means that there is an increase in government expenditure to spend more leading to larger industries and attraction of other like industries, industrial agglomeration. Rapid urbanisation occurs and there is a significant decrease in the rural population. Malaysia, China, Argentina and Chile are all countries within the 4th stage of the Rostow model.
The 5th stage within the Rostow model is the final stage showing that a country has a self-sustaining economy.
