The document discusses several theories of balanced and unbalanced economic growth proposed by developmental economists:
1) The theory of balanced growth proposes simultaneous development of all sectors to achieve holistic development. Rosenstein-Rodan advocated for a "big push" of comprehensive investment across industries to overcome obstacles.
2) Lewis' theory of unlimited labor supply proposed that economic development occurs through transferring surplus rural labor to industrial sectors.
3) Nurkse saw underdevelopment as a "vicious circle of poverty" broken through balanced growth across agriculture, industry, domestic and foreign trade to expand markets.
4) Critics argue that balanced growth may not solve underdevelopment and countries lack resources to achieve perfect balance across all sectors.
The document discusses several theories of balanced and unbalanced economic growth proposed by developmental economists:
1) The theory of balanced growth proposes simultaneous development of all sectors to achieve holistic development. Rosenstein-Rodan advocated for a "big push" of comprehensive investment across industries to overcome obstacles.
2) Lewis' theory of unlimited labor supply proposed that economic development occurs through transferring surplus rural labor to industrial sectors.
3) Nurkse saw underdevelopment as a "vicious circle of poverty" broken through balanced growth across agriculture, industry, domestic and foreign trade to expand markets.
4) Critics argue that balanced growth may not solve underdevelopment and countries lack resources to achieve perfect balance across all sectors.
The document discusses several theories of balanced and unbalanced economic growth proposed by developmental economists:
1) The theory of balanced growth proposes simultaneous development of all sectors to achieve holistic development. Rosenstein-Rodan advocated for a "big push" of comprehensive investment across industries to overcome obstacles.
2) Lewis' theory of unlimited labor supply proposed that economic development occurs through transferring surplus rural labor to industrial sectors.
3) Nurkse saw underdevelopment as a "vicious circle of poverty" broken through balanced growth across agriculture, industry, domestic and foreign trade to expand markets.
4) Critics argue that balanced growth may not solve underdevelopment and countries lack resources to achieve perfect balance across all sectors.
The document discusses several theories of balanced and unbalanced economic growth proposed by developmental economists:
1) The theory of balanced growth proposes simultaneous development of all sectors to achieve holistic development. Rosenstein-Rodan advocated for a "big push" of comprehensive investment across industries to overcome obstacles.
2) Lewis' theory of unlimited labor supply proposed that economic development occurs through transferring surplus rural labor to industrial sectors.
3) Nurkse saw underdevelopment as a "vicious circle of poverty" broken through balanced growth across agriculture, industry, domestic and foreign trade to expand markets.
4) Critics argue that balanced growth may not solve underdevelopment and countries lack resources to achieve perfect balance across all sectors.
The two important categories of theories of development propounded
by the2 developmental economists are:
• (i) The theory of balanced growth
• (ii) The theory of unbalanced growth
THE THEORY OF BALANCED GROWTH 3 The basic proposition of balanced growth theory is that- • There must be harmonious or simultaneous development of all the sectors • Holistic development in the economy The propounders of the balanced growth theories suggested that- • The investment must take place simultaneously in all the sectors of development- • Agriculture and Industry • Between domestic and export sector • Between social and economic overhead
In order to facilitate balanced development
The idea of balanced growth theory
4 The advocates of the balanced growth strategy suggest that- • No single strategy will take us to towards the attainment of the goal of economic development • Not only the strategy to be changed from time to time as the situation may require • But it may be necessary sometimes to strike a balance between the alternative strategies
The balanced growth theory emphasizes on-
• The investment in a proportionate manner in all the sectors of development • Goal of holistic development is achieved • Some of the definitions of balanced growth given by different protagonists are follows: • According to P L Samuelson, “Balanced Growth implies growth in every wind of capital stock at constant rates.” 5 of Benjamin Higgins “a wave of capital investment in a number of industries is called Balanced • In the words Growth.” • To W.A. Lewis “in development programmes, all sectors of economy should grow simultaneously so as to keep a proper balance between industry and agriculture and between production for home consumption and production for exports.” • According to C.P. Kindleberger“balanced growth implies that the investment takes place simultaneously in all sectors or industries at once, more or less along the lines of the slogan.You cannot do anything until you can do everything.” • Alak Ghosh said “planning with balanced growth indicates that all sectors of the economy will expand in same proportions, so that consumption, investment and income will grow at the same rates.” • R F Harrod viewed “balanced growth aims at equality between growth rate of income, growth rate of output and growth rate of natural resources.” ROSENSTEIN RODAN’S THEORY OF BALANCED GROWTH • Advocated “big push” theory 6 • Which emphasizes that a “big push” or a large comprehensive investment is needed in order to overcome the obstacle to development in an underdeveloped economy • The theory states that- • Investing in “bit by bit” or in piecemeal will not enable an economy to successfully be on the development path • Rather preferably a minimum amount of investment is necessary for enabling an economy to successfully be in the development and growth path • The key factor of development is “indivisibility” • Indivisibility of inputs, outputs or processes lead to increasing returns 7 • Social overhead capitals such as power, transport and communication have greater indivisibility feature and are indirectly productive and have a long gestation period • Cannot be imported rather internally generated • Installations require a ‘sizable initial lump’ of investment The social overhead capital is characterized by four indivisibilities: • (i) irreversible in time • (ii) minimum durability • (iii) long gestation period • (iv) irreducible minimum industry mix of different kinds of public utilities These indivisibility characteristics of social overhead capital are key to production process • Also advocated for indivisibility in demand and supply of saving in order to keep the market dynamic and vibrant 8 • Big-push investment in various types of industries will create multiple cross-cutting demands for each other industries product • Unless there is assurance that the necessary complementary investment will occur, any single investment project may be considered too risky to be undertaken at all • The indivisibility of demand requires setting up of interdependent industries • Stress is the upon supply of saving • A high quantum of investment requires a high volume of savings • The underdeveloped economies savings are low because of low income • To reduce the gap between income and expenditure, the rate of saving should be created The application of Rosenstein Rodan’s big push theory in under developed countries
9 • High minimum quantum of investment requires a high volume of saving • Which is difficult of achieve in low income underdeveloped countries • The way out of the vicious circle is to have first an increase in income and to provide mechanisms which assure that savings are higher
Requires balance in three major sector-balance between-
• social overheads (SOCs) and directly productive activities (DPAs) • consumers’ goods industries and producers’ goods industries and • oriental and vertical balance within consumer goods sector W. A. LEWIS’ THEORY OF UNLIMITED SUPPLY OF LABOUR • Based on proposition of unlimited supply of labour 10 Like the classical economists, he believed that- • In underdeveloped economies supply of labour is unlimited at a subsistence wage rate • The economic development takes place- • When these surplus labour are withdrawn from the “subsistence sector” and • Placed in “capitalist sector” through capital accumulation
• In other words, • Transfer of labour from the labour surplus agriculture sector to the industry sector will promote the balanced development of both the sectors The key to economic development in Lewis’ model is- • Capital formation 11 • When the capitalist use a part of its surplus in reinvestment for creation of new capital • Leads to increase in employment and productivity In the process- • The capitalist draws labour from the subsistence sector and • This reinvestment of profit continues till entire surplus is absorbed
Profits and their reinvestment have great importance in economic growth
The important components of Lewis theory are: 12
• (I) role of technology in development
• (ii) role of private capitalist in development process • (iii) role of government • (iv) role of bank credit • According to Lewis • This13growth process will not continue forever
But will come to a halt for the following reasons-
• Growth of capitalist sector will reduce the surplus labour in subsistence sector • Resulting in rise in wage of labour in capitalist sector • Further result in fall in the capitalist surplus • It will reduce capital formation and • reverse the expansionary process. RAGNAR NURKSE’S THEORY OF BALANCED GROWTH • Believes that the underdeveloped countries are suffering from the vicious circle of poverty, 14 which is detrimental to economic development in these countries
• “a circular constellation of forces, tending to act and react upon one another in such a way as to keep a country in a state of poverty” • This vicious circle of poverty adversely affects the accumulation of capital in economically underdeveloped countries • If this vicious circle of poverty is broken then development will follow • “the expansion of market can be realized only through a process of balanced growth, where people in different countries, working with new and better tools, become each other’s consumer” • Principle of balanced growth needs- 15 • a balance between different sectors of the economy during the process of economic growth and development • These are: • (i) balance between agriculture and industry • (ii) balance between domestic and foreign trade • (iii) balanced between demand and supply factors Some of the benefits of balance growth are as follows: • (i) balanced growth can better promote equitable and balanced regional development 16 • (ii) balanced growth can pare the way for division of labour and thus can raise the specialization and productivity of labour force • (iii) when there is balanced growth of both agriculture and industrial sector, it will lead to creation of social over head capital for the effective growth of all these sectoral activities • (iv) it will boost foreign trade as expansion of both internal and external markets of the product of an economy will to a great extent promote foreign trade • (v) it will lead to better utilization of both natural and human resources of an economy • Merits of the Balanced Growth theory • (i) emphasized that all the sectors should develop simultaneously and no sector will be discriminated. • 17it will promote balanced regional development • (ii) create external economies • The benefits created in one sector will push investment in the other sector and will provide boost to the new industries from the existing industries • (iii) create social overhead capital • When different industries develop simultaneously, the investment is called for in social overhead capital for the promotion of various sectors • (iv) reduce the dependence of underdeveloped countries on the foreign countries • The principle of balanced growth leads to enlarge the extent of the market and external economies • This process will lead to self-generating economies and as a result, there is less dependence on foreign countries • Criticisms of Balanced Growth Theory • According to Singer “balanced growth can neither solve the problem of underdeveloped 18 countries, not do they have sufficient resources to achieve balanced growth” • Some of the criticisms of balanced growth theory are as follows: • (i) The balanced growth theory is more suitable to developed countries than developing countries. • The developed countries can effectively implement balanced growth process as they possess sufficient resources, technology and entrepreneurs • (ii) One of the drawbacks of the balanced growth theory is disproportionality in the factors of production due to deficiency of capital and surplus manpower. • In many of the developing countries too much of labour is employed against too little capital.This disproportionality will create many hurdles in the path of development
