Economic Theories

Big Push theory

• Definition and Explanation:
•
• The Big Push Theory has been presented by Rosenstein Rodan. The idea behind this theory is this that
a big push or a big and comprehensive investment package can be helpful to bring economic development.
In other words, a certain minimum amount of resources must be devoted for developmental programs, if the
success of programs is required.
•
• As some ground speed is required for the aircraft to airborne. In the same way, certain critical amount of
resources be allocated for development activities. This theory is of the view that through 'Bit by Bit'
allocation no economy can move on the path of economic development, rather a specific amount of
investment is considered something necessary for economic development. Therefore, if so many mutually
supporting industries which depend upon each other are started the economies of scale will be reaped.
Such external economies which are attained through specific amount of investment will become helpful for
economic development.
•
• Rosenstein Rodan has presented three types of indivisibilities and economies of scale. They are as:
1. Indivisibilities in the production function
It consists of 3 indivisibilities such as input, processes, and output. And the infrastructure consisted of three factors
such as means of transportation, communication and energy resources. He suggested that less developed countries
have to spend 30% to 40% of investment on SOC. Rosenstein Rodan gives more importance to economies which
arise due to the establishment of social overhead capital. And SOC cannot be imported.
2. Indivisibilities of demand
It is also termed as complementarity of demand. All industries are connected to each other in many ways. So
development should be done in such a way that the demand for industries should complement each other. So
investment should be done in all areas which could ultimately result in supporting each other.
3. Indivisibility in the supply of savings
The supply of savings also serves as an indivisibility. A specific amount of investment can be made in the presence of
specific savings But in case of UDCs because of lower incomes the savings remain low.
2.Theory of balanced Growth
• It was given by Rosenstein ies Rodan, Nurkse and Lewis
• Balanced growth requires balance between
different consumer goods industries and between consumer and
capital goods industries
industry and agriculture
Domestic and export sector
Social and economic overheads
It states there should be harmonious development of diff sectors of
economy so that all sectors grow in unison.
Nurkse believed that the subject of who should promote development does not concern economists. It is an
administrative problem. The crucial idea was that a large amount of well dispersed investment should be made
in the economy, so that the market size expands and leads to higher productivity levels, increasing returns to
scale and eventually the development of the country .
Criticism to Balanced Growth Theory
Ragnar Nurkse’s balanced growth theory too has been criticised on a number of grounds. His main critic was
Albert O. Hirschman, the pioneer of the strategy of unbalanced growth.

Hirschman stressed the fact that underdeveloped economies are called underdeveloped because they face a lack
of resources, maybe not natural resources, but resources such as skilled labour and technology. Thus, to
hypothesise that an underdeveloped nation can undertake large scale investment in many industries of its
economy simultaneously is unrealistic due to the paucity of resources. To quote Hirschman, “If a country were
ready to apply the doctrine of balanced growth, then it would not be underdeveloped in the first place.”
3.Theory of unbalanced Growth
• Hirschman believed in unbalancing the economy
• Investments in strategically selected sectors or industries will lead to
new investment opportunities and will pave way for development
• Other sectors would automatically develop themselves through
linkages effect.
• Series of disequilibrium is also imp for the growth of an economy
• Unbalanced growth requires less amount of capital, making
investment in only leading sectors.
4.Critical Minimum Effort Theory
• By Leibenstein : thesis for under developed nations, characterized by
vicious cycle of poverty
• Need for critical minimum effort needed to raise per capita income at
which sustained development is maintained
• Role of Growth agents:By growth agents we mean those individuals
who have the capacities to carry out the growth contributing
activities.” Leibenstein’s growth agents are not land, labour and
capital, but his growth agents are the entrepreneurs, investors,
discoverers, savers and innovators. Leibenstein found that
entrepreneur is the most crucial agent of growth.
• According to Leibenstein, every economy is under the influence
of two forces—’shocks’ and ‘stimulants’.
• Shocks refer to those forces which reduce the level of output,
income, employment and investment etc. In other words,
shocks dampen and depress the development forces
• stimulants refer to those forces which raise the level of income,
output, employment and investment etc. In other words,
Stimulants impress and encourage development forces. They
are called ‘Income Generating forces’ which lubricate the wheel
of development.
• The long run economic development does not take place in
backward and undeveloped countries as the magnitude of
stimulants in those countries is quite small. A country is said to
be underdeveloped if the impact of shocks in stronger than the
impact of stimulants

In order to break the circle of poverty, backwardness and

other imperfection in underdeveloped country, they must
get critical effort sufficient in magnitude to move the
economy on the path of development.