STAGE MODEL (1)

National economies are anything but static. Upgrading in an economy is the movement toward more sophisticated sources of competitive advantage and toward positions in higher productivity segments and industries. Porter extended the diamond theory to consider the national economy as a whole, and provided ways of thinking about how entire national economies progress. Porter's stage model is the newest and most rigorous. Notwithstanding, it is still useful to compare and contrast other stage models with the Porter model, This chapter deals with the stage models of Adam Smith, Karl Marx, Walt Rostow, Alvin Tofler, and Michael Porter.

Porter's theory suggests four distinct stages of national competitive development: factor-driven, investment-driven, innovation-driven, and wealth-driven stages. The first three stages involve successive upgrading of a nation's competitive advantages and are normally associated with progressively rising economic prosperity. The fourth stage is one that ultimately leads to decline. These stages provide one way of understanding how economies develop or decline.

The stage model of economic development provides a better understanding of a nation's competitiveness by further considering different development stages, and thereby should be used together with the diamond model of competitiveness. Porter recognized this need and made another contribution to this area with the introduction of a new stage model. However, the Porter stage model has some problems, which will be discussed in the next chapter.