Balanced vs Unbalanced Growth
Balanced versus Unbalanced Growth: Nature and Limitations. (68)
Define the terms in question, consider the underlying economic logic of each approach, and identify the major criticisms of either. Can a case be made for a strategy based on one rather than the other?
After the Second World War, theorists began to analyse how less economically developed regions could become more developed. The most notable original theories of development were of balanced and unbalanced growth. These strategies posited two different approaches as to how a developing economy can become developed. Ragnar Nurkse and Paul Rosenstein-Redan were the pioneers of the balanced growth theory which hypothesised that in order for development to occur, the government needed to make large investments in several industries simultaneously which would consequently enlarge the market size and provide an incentive for the private sector to invest. An important assumption of this theory is that the agricultural and industrial sectors of the economy provide a market for the products that each sector produces, thus enabling supply to create its own demand. The theory of unbalanced growth developed through the criticisms of the balanced growth theory. Its proponents, Albert Hirschman and Paul Streeten, argued that the balanced growth theory had unrealistic assumptions and expectations. They instead proposed that imbalances of growth in the economy must be maintained because unequal development of various sectors generated conditions for rapid growth. This occurs through backward and forward linkages. Both strategies of growth have their strengths and weaknesses. In this essay I will discuss the underlying economic assumptions of each strategy, highlight their criticisms and analyse whether one in particular is more suited for application to developing regions.
In 1943 Rosentein-Redan developed the ‘Big-Push’ model which was a concept that emphasised the need for large scale investments to allow the
Define the terms in question, consider the underlying economic logic of each approach, and identify the major criticisms of either. Can a case be made for a strategy based on one rather than the other?
After the Second World War, theorists began to analyse how less economically developed regions could become more developed. The most notable original theories of development were of balanced and unbalanced growth. These strategies posited two different approaches as to how a developing economy can become developed. Ragnar Nurkse and Paul Rosenstein-Redan were the pioneers of the balanced growth theory which hypothesised that in order for development to occur, the government needed to make large investments in several industries simultaneously which would consequently enlarge the market size and provide an incentive for the private sector to invest. An important assumption of this theory is that the agricultural and industrial sectors of the economy provide a market for the products that each sector produces, thus enabling supply to create its own demand. The theory of unbalanced growth developed through the criticisms of the balanced growth theory. Its proponents, Albert Hirschman and Paul Streeten, argued that the balanced growth theory had unrealistic assumptions and expectations. They instead proposed that imbalances of growth in the economy must be maintained because unequal development of various sectors generated conditions for rapid growth. This occurs through backward and forward linkages. Both strategies of growth have their strengths and weaknesses. In this essay I will discuss the underlying economic assumptions of each strategy, highlight their criticisms and analyse whether one in particular is more suited for application to developing regions.
In 1943 Rosentein-Redan developed the ‘Big-Push’ model which was a concept that emphasised the need for large scale investments to allow the