What is Big Push Theory in Economics?

ICV

IRSHAD CV has been a student in Economics. Now he is doing Masters in Economics. He completed B.A.
Economics from the University of Calicut.

big-push-theory-in-economics

Introduction

Nowadays, growth and development becomes one of the crucial aims of any economy. No doubt, every
economy or countries of the world started their journey of progress and prosperity from nothingness.
Now, basically the entire economies of the world can be classified under three heads like
underdeveloped economies, developing economies and developed economies. Underdeveloped
economies are shows its backwardness and failure of proper utilization of resources. In developmental
economics, there are many concepts like vicious circles of poverty, unemployment, rate of capital
formation, savings, market size etc. Based on these concepts, economists developed different strategies
of economics of growth and development.

Professor Rosenstein is regarded as the forerunner of the big push theory. Later the same theory was
also popularized by economists like Rodan and Libenstein. Here this hub is aimed to provide a very brief
note on big push theory.

Big Push Theory

Under developed economies are generally characterized with many poor social and economical indices.
Over taking of the under developed characteristics is one of the great challenges and it is a long term
task. Basically under developed economies are running under the trap of vicious circles of poverty.
Which means that the economy suffering low employment or mass unemployment. Therefore people
will earn lower income. So saving and consumption will be lower. This will lead to small market size and
slower rate of capital formation. When the capital formation is lower, there will no more investment,
production, employment, income etc. This kind of trap exists in under developed economies.
The biggest task of an under developed economies is to break the trap of vicious circles of poverty. Then
only the economy can grow. The big push theory is states that, under developed economies are in
urgent of heavy investments in its different sectors. This may push the economy in to a higher
developed stage from under developed conditions. The theory also states that, low rate of investment in
a single industry will not create any impacts in the economy. So it will be wastage. Because low rate of
investment in a single industry cannot influence the economy as a whole and cannot able to break the
trap of vicious circles of poverty, unemployment, low productivity, low income etc.

Three Indivisibilities

To explain the big push theory, Professor R. Roden has suggested three indivisibilities namely,

i) Indivisibility of production function

ii) Indivisibility of demand, and

iii) Indivisibility of supply of savings.

Each of this indivisibility is explained separately given below.

i) Indivisibility of Production Function

Indivisibility of production function refers to the improvements in the various production aspects of an
under developed economies. It consists of inputs for production, factors of production, output etc.
Generally, under developed economies are functioning with poor productivity, lower income, lower
employment, poverty etc. This is basically because of the low capital-output ratio in the under
developed economies. In advanced countries, the capital output ratio will be lower since the availability
of better technologies.
To improve the productivity of the under developed countries, government must invest in social over
head capitals like canals, roads, bridges, rail, power etc. This kind of investment requires huge public
expenditure and the result is based on long term period. Investments in the basic infrastructure will
directly generates employment opportunities and indirectly widen the market size by increasing the
income and aggregate demand of households. Once people get employment, there will be an increasing
trend in both consumption and savings. Which may lead the economy to produce more and by optimum
utilization of the resources.

ii) Indivisibility of Demand

As mentioned above, market size of under developed economies is very small. It means that, lower
demand, lower production, low rate of capital formation and lower income. So there required wide
changes in the economy to achieve growth and development. The ultimate solution for the deficiency in
demand is to conduct huge investment in every sector of the economy. It is not better to invest in a
particular industry. Because small rate of investment in a single industry or few industries of under
developed countries will be wastage. Generally, higher investment will provide maximum employment,
income, demand, investment and so on. In this way the economy can achieve growth and development.

iii) Indivisibility in the Supply of Savings

Supply of sufficient amount of savings is one of the most important factors of economic growth and
development. Because, a higher rate of savings denotes that, people are earning higher income. In other
sense, savings is higher because of higher employment rate. In under developed countries, supply of
savings will be lower since people lack employment and earns lower income. This is the basic reason for
the lower capital formation, investment and small market size. In fact, under developed economies can
grow more only when it can able to generate saving habits in the society. Therefore, the solution is that,
government must invest on heavy projects, which will automatically generate employment and income.
When people began to get more and more income, there will be also an increase in the rate of savings
and investment. This will ensure higher capital formation. Further, the economy can enjoy the fruits of
economic growth and development only when its marginal rate of savings exceeds average rate of
savings.
Conclusion

The big push strategy is one of the most important strategies of economic growth and development. It
put some methods before the under developed economies to improve and empower the economy from
its pathetic conditions. The theory is emphasis on the role of investment in an economy. It also
mentioned that, there should be equalization in investment in the every sector of the economy.