Eco 404 Slides 2022

UNIVERSITY OF CAPE COAST
Cape Coast, Ghana

Eco 404: Economic Growth &
Development II
Dr. Benedict Afful Jr.
0244984060
benedictaffuljr@ucc.edu.gh
Department of Economic Studies

School of Economics
College of Humanities and Legal Studies
University of Cape Coast
CAPE COAST - GHANA COURSE OUTLINE
•Strategies and Policies of

Economic Development
➢Balanced and Unbalanced Growth
➢Import-Substitution Industrialisation
➢Export-Oriented Industrialisation
Dr. Benedict Afful Jr, Lecturer in Economics

CAPE COAST - GHANA COURSE OUTLINE cont’
• Mobilizing Resources for Economic

Development
➢ Voluntary and Involuntary saving
➢ Deficit financing
➢ Resources from Agriculture (Dual
Economy Models of Lewis and Fei and
Ranis)
➢ Foreign Capital (Dual gap Analysis)
•Finance and Development

➢The role of the financial system
➢Differences between MDC and
LDC financial systems
➢Microfinance Institutions
➢Reforming financial systems
•Trade and Development
•Environment and Development

CAPE COAST - GHANA LECTURE 1
•Strategies and Policies of

Economic Development
➢Balanced and Unbalanced Growth
➢Import-Substitution Industrialisation
➢Export-Oriented Industrialisation

CAPE COAST - GHANA
STRATEGIES AND POLICIES OF ECONOMIC DEVELOPMENT
Ghana produces:
• 51% of its cereal needs,
• 60% of fish requirements,
• 50% of meat, and
• less than 30% of the raw materials
needed for agro-based industries.
CAPE COAST - GHANA
STRATEGIES AND POLICIES OF ECONOMIC DEVELOPMENT

Definition and Explanation
CAPE COAST - GHANA
According to Prof. Nurkse:
"It is the vicious circle of poverty (VCP) which is responsible for

backwardness of UDCs".
Vicious circle of poverty:
"Implies a circular pattern of forces tending to act and react in

such a way as to keep a country in the state of poverty".

CAPE COAST - GHANA Definition and Explanation
In such state of affairs the process of capital formation remains obstructed and
restricted. This VCP is presented as:
•We start with low real income which results in an inadequate savings which in
turn will check investment. Low level of investment would create deficiency of
capital which in second round leads to low productivity. This again results in low
income. Here, the circle perpetuates the low level of development.
•From the supply side, there is low income, low savings, low investment, capital
deficiency and low productivity.
•On the demand side, low income, low demand for goods, limited home market
and low investment.
CAPE COAST - GHANA Definition and Explanation

CAPE COAST - GHANA Breaking VCP
According to Nurkse, a break through on demand side can be brought about by
spirited initiatives on the part of entrepreneurs.
On the supply side the disguised unemployment ranging between 20% to 30% of
total agri. labor force can be mobilized for financing capital formation.
And the parents of such disguised unemployed will go on feeding them.
It means that in Nurkse's model the hidden food surplus will finance the process
of economic growth.

CAPE COAST - GHANA Shortcomings/Flaws of the Model
•Entrepreneurs Responsible For Breakthrough: According to Nurkse to break the
VCP entrepreneurs will play an important role. But he does not suggest the means
for such funds. As in poor countries the savings are low, hence for the supply of
funds the credit creation will have to be restored. But Nurkse rejects it.
•Disguised Unemployment: According to Nurkse, the disguised unemployment

will finance for growth. But the domestic resources are not sufficient, they can
partially meet the requirements of growth.
•Raw Material And Machines: Nurkse's theory fails to answer the question from
where the machines and raw material will be provided to the labor which will be
utilized for capital formation. Moreover, why the parents will continue providing
food to their disguised unemployed offspring's once they get employment.
CAPE COAST - GHANA Shortcomings/Flaws of the Model
•Utilization Of Disguised is Not a New Idea: Nurkse says that the labor of Indo-
Pak have much more leisure. But it is not true. The labor perform so many works
like repair of houses, digging of canals, construction of small roads and cutting of
forests etc. Therefore, it is not possible to withdraw these people from lands.
•Misleading and Over Simplified: According to Bauer the idea of VCP is

misleading and over-simplified because the developed countries never passed
through such situation when they where UDCs.

CAPE COAST - GHANA
BALANCED
&
UNBALANCED GROWTH
CAPE COAST - GHANA Introduction
In order to get rid of vicious circle of poverty, underdeveloped
countries need investment on a large-scale.
There are two theories concerning strategy of economic
development:
1.Theory of Balanced Growth: According to Rodan, Nurkse and
Lewis, these economies should make simultaneous investment in all
sectors to achieve balance growth.
2.Theory of Unbalanced Growth: According to Hirschman,
Singer, Fleming. These economies should create a situation of
unbalance by making large investment in anyone sector.
CAPE COAST - GHANA
BALANCED GROWTH

CAPE COAST - GHANA Theory of Balanced growth
• Fredrick List was first put forward the theory of
balance growth. According to him a balance could
be established among agriculture, industries and
trade.
• In the year 1928, Arthur Young gave the concept
of different industries were mutually
interdependent, then all of them should be
developed simultaneously.
CAPE COAST - GHANA Theory of Balanced growth
A strategy of growth with an equal emphasis on
agriculture and industry.
Agricultural development provides the food required
and releases labour from the land to engage in
industry.
Industrial wealth stimulates markets for agricultural
growth or such is the theory.

CAPE COAST - GHANA Definition
According to Lewis:
“Balance growth means that 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. The truth is that all sectors
should be expanded simultaneously.”

CAPE COAST - GHANA Different Views Regarding Balanced Growth
1. Rodan’s Theory of Balanced Growth.
Rodan has referred to three kinds of indivisibilities:
(i) Indivisibility in the production function or in the
supply of social overhead costs
(ii)Indivisibility of Demand
(iii)Indivisibility of Supply of savings
According to an article ‘Notes on Big Push’(1957) by
Rodan;
➢ Indivisibilities of supply side are concerned with
social overhead capital.
➢ Indivisibilities of demand side means restricting
the desirability and profitability of economic
activities due to the narrow extent of the market.
2. Nurkse’s Theory of Balance Growth:
According to Prof. Nurkse in the development of
underdeveloped countries the greatest obstacle is Vicious Circle
of Poverty. The Vicious Circle shows that income is low in
underdeveloped countries. Because of low income, saving is
low. Therefore investment and output is low. Low output
means low income.
(i)Complementarity of Demand
(ii)Intervention by the Government
(iii)External Economies
(iv)Accelerated Rate of Growth

3. Lewis’s Theory of Balanced Growth
Lewis has given the following two arguments in
favour of balanced growth:
(i) In the absence of balanced growth, price in one
sector may be more than the prices in others.
(ii) When the economy grows then several
bottlenecks appear in different sectors.
Different Views Regarding Balanced Growth
CAPE COAST - GHANA
4. Hans Singer’s Theory of Balance Growth:

Singer explains the doctrine of balanced growth by
paraphrasing a metaphor coined in a different context:
“100 flowers may grow where a single flower would
wither away for lack of nourishment”
Singer also agrees that the slogan “stop thinking

piecemeal and start thinking big” is sound advice for
underdeveloped countries.
CAPE COAST - GHANA Balance among Different Sectors
➢Balance between Agriculture and Industries
➢Balance between Human and Physical Capital
➢Balance between Domestic Trade and Foreign Trade
➢Role of Government in the Balance Growth

CAPE COAST - GHANA
READING ASSIGNMENT
1. Summary of balance growth
2. Advantage of theory balanced growth
3. Balanced Growth Strategies: Critique
[LECTURE 2]

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UNIVERSITY OF CAPE COAST

Cape Coast, Ghana

Department of Economic Studies

•Strategies and Policies of

Dr. Benedict Afful Jr, Lecturer in Economics

• Mobilizing Resources for Economic

•Finance and Development

•Trade and Development

•Environment and Development

Dr. Benedict Afful Jr, Lecturer in Economics

•Strategies and Policies of

Dr. Benedict Afful Jr, Lecturer in Economics

Dr. Benedict Afful Jr, Lecturer in Economics

According to Prof. Nurkse:

"It is the vicious circle of poverty (VCP) which is responsible for

Vicious circle of poverty:

"Implies a circular pattern of forces tending to act and react in

Dr. Benedict Afful Jr, Lecturer in Economics

Dr. Benedict Afful Jr, Lecturer in Economics

And the parents of such disguised unemployed will go on feeding them.

Dr. Benedict Afful Jr, Lecturer in Economics

•Disguised Unemployment: According to Nurkse, the disguised unemployment

•Misleading and Over Simplified: According to Bauer the idea of VCP is

Dr. Benedict Afful Jr, Lecturer in Economics

Dr. Benedict Afful Jr, Lecturer in Economics

Dr. Benedict Afful Jr, Lecturer in Economics

Dr. Benedict Afful Jr, Lecturer in Economics

Dr. Benedict Afful Jr, Lecturer in Economics

4. Hans Singer’s Theory of Balance Growth:

Singer also agrees that the slogan “stop thinking

➢Balance between Human and Physical Capital

➢Balance between Domestic Trade and Foreign Trade

➢Role of Government in the Balance Growth

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