Demonstration effect

Demonstration effects are effects on the behavior of individuals caused by observation of the actions of others and their consequences. The term is particularly used in political science and sociology to describe the fact that developments in one place will often act as a catalyst in another place.

Examples

• In the late 18th century, the successful American Revolution might have provided a demonstration effect that sparked the subsequent French Revolution. Generally, many argue that political movements are often given a boost from the observed success of similar political movements in other countries. The domino effect thesis relates to this idea; it argued that successful communist revolutions in some countries would provide an impetus for communist revolutions in other countries.
• Countries often adopt economic and other policies similar to those used by successful countries; the proven success of the policies provides a demonstration effect that impels other countries toward similar policies in order to emulate that success.
• Some heterodox economists such as James Duesenberry and Robert H. Frank, following the original insights of Thorstein Veblen (1899), have argued that awareness of the consumption habits of others tends to inspire emulation in of these practices. Duesenberry (1949) gave the name "demonstration effect" (p. 27) to this phenomenon, arguing that it promoted unhappiness with current levels of consumption, which impacted savings rates and consequently opportunities for macroeconomic growth. Similarly, Ragnar Nurkse (1953) argued that the exposure of a society to new goods or ways of living creates unhappiness with what had previously been acceptable consumption practices; he dubbed it the "international demonstration effect." He believed that in developing nations, pressure to increase access to material goods rapidly increases primarily because people "come into contact with superior goods or superior patterns of consumption, with new articles or new ways of meeting old wants." As a result, he argued, these people are "apt to feel after a while a certain restlessness and dissatisfaction. Their knowledge is extended, their imagination stimulated; new desires are aroused" (Nurkse quoted in Kattel et al. 2009, p. 141).
• Parents may take care of their parents in order to create a demonstration effect by which their children will later care for them. [1]

Economics

In economics, demonstration effects may help explain the spread of financial or economic crises like the Asian financial crisis. Investors do not always know everything about the economic situation of countries in which they invest. When investors see a country's economy collapse, however, they may question the safety of investments in countries with similar economic policies. Goldmann Sachs believes that the demonstration effect is encouraging more domestic firms to set up in the IT industry or increase R&D spending, leading to an increase in the countries productivity, pushing India on the way to 10% growth, alongside a number of other factors such as the Golden Quadrilateral and a rise in the financial sector.

Foreign policy

Part of the rationale behind the 2003 invasion of Iraq was that the democratization of Iraq would demonstrate to other countries that Arab oil states could attain democracy, and also demonstrate benefits from such democratization. It was theorized that such demonstration effects would speed the development of democracy throughout the Middle East.

Bibliography

Duesenberry, J.S. 1949, Income, Saving and the Theory of Consumer Behavior, Harvard University Press, Cambridge.

Kattel, R., Kregel, J.A. and Reinert, E.S. 2009, Radgnar Nurkse: Trade and Development, Anthem, London. (ISBN 1843317877) Edited Collection of Nurkse's key works.

Nurkse, R. 1953, Problems of Capital Formation in Underdeveloped Countries, Blackwell, Oxford.

Veblen, T. 1899 [2005] Conspicuous Consumption, Penguin Books, London.