Topic: Adam Smith's Theory

Question: Can Adam Smith's theory be applicable in Philippines? Give reasons for your answer.

Context:

The Relevance of the Theory to the Less Developed Countries

The following are the applicability of the theory to the developing countries:

1) The economies of the LDCs are characterised by low income, low savings, low investment and a high propensity to consume (every increase in income is consumed). All this makes the market remain small and hence impede the growth of division of labour and further expansion of market for development.

2) Political, social and institution assumptions underlying Smith's theory are not applicable in underdeveloped countries. Also the principle of laissez-faire cannot be effective in allocating scarce resources because exploitation of the masses will be the other of the day. So therefore for development to take place in a less developed country, government intervention is very necessary.

Despite all these, the theory can still be said to be relevant to the less developed countries because Smith gave some key points that can help any economy to achieve growth and examples are the agents of growth mentioned in the model, the promotion of balanced growth in an economy, and the emphasis laid on savings.