In the 5 stages of the Rostow model, the role of capital investment is greatest during the preconditions to take off stage and take off stage. The amount of investment to countries in the preconditions to take off stage usually comes out to be 5% of their GDP. Many counties reach this stage because of colonization. After they pass that stage, they reach take off, by this stage they are usually independent, manufacturing industries grow rapidly, better transportation needs to be put in, the money for this usually comes from foreign investment (10%-15% of GDP) or borrowing from other countries. In the stages beyond take off, capital investment usually decreases because the country becomes economically self sustainable, meaning that the country it self can manage the costs for its own development.
In order to be pushed into the stage 4 of the Barke and O’Hare model, TNC’s play a major role in bring in the investment and skills needed to bring up the standard of living in developing countries. The reason TNC’s move to developing countries is because they want cheaper labor, tax concessions and being closer to a growing market. According to the BH model, these TNC’s help the developing countries develop, however, in many places this is not the case, the TNC’s want the wages to stay low, want the laws to stay relaxed. In China, there are many TNC’s such as Nike, McDonald’s… Most of the money that is made in these places goes back to the mother country of the TNC’s, though they might want to keep things the way they are, they are still TNC’s meaning they must report back to the MEDC they are from, therefore they must keep certain global standards, exposing the Chinese to these standards pushes the local factories to bring up their standards as well, and when the local factories achieve the same standards, the workers will come back to work for local shops, being more loyal to their country. Therefore money begins to flow back into the country, generating a stronger economy.
Capital input is a crucial factor in driving the development in the Rostow’s model, especially in the time between stage 2 and 3, preconditions for take-off and take-off.
Due to the decreasing proportion of primary production, society drives to the secondary production. The country begins to industrize. Government inputs capital to build Infrastructures such as roads to transport goods and materials. Also, it subsidies infant industries in order to help them to grow stronger. Urban city and CBD starts having shape, usually in a core form and underdeveloped periphery. Government inputs capital in public sectors such as building roads within the area and outreached expresses links to the outer towns. Investments start boosting, mainly in the industrial sector.
Externally, due to the colonized system (mostly in LEDCs), foreigners use the domestic resources such as primary goods, as the same time; they invest to the local such as building factories. It helps speeding up the economy and also, transferring skills and knowledge, which aid the further development in the country.
Therefore, the input of capital is dominant in Rostow’s model of development.
Transnational corporations are companies that have their branches worldwide due to the lower production cost and potential markets, usually their headquarters are in MEDCs. In the Barke and O’Hare’s model, transnational corporations are playing a crucial role in developing African countries particularly.
Especially in stage 2 of the model–colonialism and the processing of primary products, raw materials exports to overseas markets while the dominant imports are come from the colonial powers. In order to get a higher accessibility and convenience, colonial powers build ports in the colonized soil, such as in Accra and Lagos. Locals are then receiving higher and more modern knowledge and as they are skilled and educated, they can have their own ability to develop the country on their own. Furthermore to spur up the economy in a long term.
North Korea would be a good example of developing its economy without relying on investment by transnational corporations. Due to its closed economic system, TNCs are impossible to get into North Korean market and therefore, the National government has been developing its own industrial sector.
In 1946, the government started nationalizing the key industrial enterprises and intended to develop the heavy industry. Later that year, there had 31% of light industry but 65% of heavy industry. After the Korean War, both North and South Korea were suffering in massive destruction, North Korea then mobilized its labour force and natural resources in order to turn the economy. In the 1970s, N. Korea started introducing technology in the nation, yet its economy still counted on the heavy industry. On the other hand, in order to meet the manpower as well as the technology requirements, education was also put into account for development.
And then in the following years, N. Korea was living in heavy and eventually, it realized that it is essential to operate international trade. Therefore, N. Korea had its open-door policy since early this century.
In the 1970s, N. Korea was trying to boost its heavy industry. However at the same time, N. Korea found itself was in a big debt due to the oil crisis. By 1980s, it failed to repay the debt particularly from Japan. By the end of 1986, N. Korea had owed Japan more than $4 billion and at the same time, it owned communist creditors nearly $2 billion. Because of the huge debt, N. Korea economy was not able to grow well and thus it moved slowly. By the end of 1979, GDP per capita in N. Korea was only one-third of the one in South Korea.
Kim Il-sung promoted a new economic policy to cure the problem, especially emphasized on trading. And in the following years, N. Korea has been being more open to imports in order to diverse its market and to survive in this globalized world.