Ragnar Nurkse's balanced growth theory
Encyclopedia
The balanced growth theory is an economic theory pioneered by the economist Ragnar Nurkse
(1907–1959). The theory hypothesises that the government of any underdeveloped country needs to make large investments in a number of industries simultaneously. This would consequently enlarge the market size and provide an incentive for the private sector to invest.
Ragnar Nurkse was in favour of attaining balanced growth in both the industrial and agricultural sectors of the economy. He recognised that the expansion and inter-sectoral balance between agriculture and manufacturing is necessary so that each of these sectors provides a market for the products of the other and in turn, supplies the necessary raw materials for the development and growth of the other.
Nurkse and Paul Rosenstein-Rodan
were the pioneers of balanced growth theory and much of how it is understood today dates back to their work.
, who stated that division of labour
is limited by the extent of the market.
According to Nurkse, underdeveloped countries lack adequate purchasing power
. Low purchasing power means that the real income of the people is on the lower side, although in monetary terms it may be high. Had the money income been low, the problem could easily have been overcome by expanding the supply of money. But since the meaning in this context is real income, expanding the money supply
will only generate inflationary pressure. Neither real output nor real investment will rise. It is to be noted that a low purchasing power would mean that domestic demand
for commodities is low. Apart from encompassing consumer goods and services, this includes the demand for capital
too.
The size of the market determines the incentive to invest irrespective of the nature of the economy. This is because entrepreneurs invariably take their production decisions by taking into consideration the demand for the concerned product. For example, if an automobile manufacturer is trying to decide which countries to set up plants in, he will naturally only invest in those countries where the demand is high. He would prefer to invest in a developed country, where though the population is lesser than in underdeveloped countries, the people are prosperous and there is a definite demand.
Private entrepreneurs sometimes resort to heavy advertising
as a means of attracting buyers for their products. Although this may lead to a rise in demand for that entrepreneur's good or service, it does not actually raise the aggregate demand
in the economy. The demand merely shifts from one provider to another. Clearly, this is not a long-term solution.
Ragnar Nurkse concluded,
in the way that developed countries do. Their problem is to do with a lack of real purchasing power
due to low productivity levels. Thus, merely increasing the supply of money will not expand the market but will in fact cause inflationary pressure.
duties, exchange controls, import quotas and other non-tariff barriers to trade
are major obstacles to promoting international cooperation in exporting and importing. More specifically, due to high transport costs between nations, producers do not have an incentive to export their commodities. As a result, the amount of capital accumulation
remains small. To address this problem, the United Nations came out with a report in 1951 with solutions for underdeveloped countries. They suggested that they can expand their markets by forming customs unions with their neighbouring countries. Also, they can adopt the system of preferential taxation or even abolishing customs duties altogether. The logic was that once customs duties are removed, transport costs will fall. Consequently, prices will fall and thus the demand will rise. Nurkse did not agree with this view though, he was an export pessimist.
For example, in most underdeveloped economies, the technology used to carry out agricultural activities is usually backward. There is a low degree of mechanisation coupled with rain dependence. So while a large proportion of the population (70-80%) may be actively employed in the agriculture sector, the contribution to the Gross Domestic Product may be as low as 40%. This points to the need to increase output per unit input and output per head. This can be done if the government provides irrigation facilities, high-yielding variety seeds, pesticides, fertilisers, tractors etc. The positive outcome of this is that farmers earn more income and have a higher purchasing power (real income). Their demand for other products in the economy will rise and this will provide industrialists an incentive to invest in that country. Thus, the size of the market expands and improves the condition of the underdeveloped country.
Nurkse is of the opinion that Say's Law
of markets operates in underdeveloped countries. Thus, if the money incomes of the people rise while the price level in the economy stays the same, the size of the market will still not expand till the real income and productivity levels rise. To quote Nurkse,
. Thus, a large scale investment programme in a wide array of industries simultaneously is the answer. The increase in demand for one industry will lead to an increase in demand for another industry due to complementarity of demands. As Say's Law states, supply creates its own demand.
However, Nurkse clarified that the finance for this development must arise to as large an extent as possible from the underdeveloped country itself i.e. domestically. He stated that financing through increased trade or foreign investments was a strategy used in the past - the 19th century - and was limited to the case of the United States of America. In reality, the so called "new countries" which separated from the British empire were high income countries to begin with. They were already endowed with efficient producers, effective markets and a high purchasing power. The point Nurkse was trying to make was that USA was rich in resource endowment as well as labour force. The labour force had merely migrated from Britain to USA, and thus their level of skills were advanced to begin with. Thus, the circumstances made the situation unique and so, not replicable by underdeveloped countries.
In fact, if such a strategy of financing development from outside the home country is undertaken, it creates a number of problems. For example, the foreign investors may carelessly misuse the resources of the underdeveloped country. This would in turn limit that economy's ability to diversify, especially if natural resources are plundered. This may also create a distorted social structure. Apart from this, there is also a risk that the foreign investments may be used to finance private luxury consumption. People would try to imitate Western consumption habits and thus a Balance of payments crisis may develop, along with economic inequality within the population.
Another reason exports cannot be promoted is because in all likelihood, an underdeveloped country may only be skilled enough to promote the export of primary goods, say agricultural goods. But, such commodities face inelastic demand. Thus, the extent to which they will sell in the market is limited. Although when population is at a rise, additional demand for exports may be created, Nurkse implicitly assumed that developed countries are operating at the replacement rate of population growth. Thus, this route of economic development is completely ruled out.
Thus, for a large-scale development to be feasible, the requisite capital must be generated from within the country itself, and not through export surplus or foreign investment. Only then can productivity increase and lead to increasing returns to scale and eventually create virtuous circles of growth.
, a debate about whether a country should introduce financial planning to develop itself or rely on private entrepreneurs emerged. 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 in question. However, it should be noted that most economists who favoured the balanced growth hypothesis believed that only the state has the capacity to take on the kind of heavy investments the theory propagates. Further, the gestation period of such lumpy investments is usually long and normally, private sector entrepreneurs do not undertake such high risk.
, the pioneer of the Strategy of unbalanced growth
. Hans W. Singer also criticised the theory on certain aspects.
Hirschman stressed upon 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 not one, but many industries of its economy, that too simultaneously is a far cry from reality due to the paucity of resources. To quote Hirschman,
Hans Singer asserted that the balanced growth theory is more applicable to cure an economy facing a cyclical downswing. Clearly, a cyclical downswing is a feature of an advanced stage of sustained growth rather than of the vicious cycle of poverty.
Hirschman too stated that during conditions of slack activity in developed countries, the stock of resources, machines and entrepreneurs are merely unemployed. They are present as idle capacity. So in this situation, simultaneous investment in a large number of sectors is a well-suited policy. The various economic agents are temporarily unemployed and once the inducement to invest starts operating, the slump will be overcome. However, for an underdeveloped economy, where such resources are absent, this principle doesn't fit in.
Another contention was Nurkse's approval of Say's Law
. The law theorises that there is no overproduction
or glut in the economy. Supply (production of goods and services) creates a matching demand for the output and this results in the entire output being sold and consumed. However, Keynes stated that Say's Law is not operational in any country because people do not spend their entire income - a fraction of it is saved for future consumption. Thus, Nurkse's assumption of Say's Law being operational in underdeveloped countries too is false. Even if the section of savers is few, the tenet of putting emphasis on supply rather than demand has been widely discredited.
Nurkse states that if demand for the output of one sector rises, due to the complementary nature of demand, the demand for the output of other industries will also experience a rise. However, he has failed to take into consideration the fact that not all industries produce complementary goods. There are substitute goods too, which are in competition with each other. Thus if the state pumps in large investments into say, the car industry, it will naturally lead to a rise in the demand for petrol. But in case the state makes large scale investments in the coffee sector of a country, the tea sector will suffer.
Hans Singer pointed out that Nurkse's theory makes dubious assumptions about the underdeveloped economy. For example, Nurkse assumes that the economy starts with nothing at hand. However, this is not true. The economy starts at a position which reflects the previous investment decisions undertaken in the country. Thus, at any given moment, an imbalance already exists. So the logical step would be to take on those investment programmes which compliment the existing imbalance in the economy. Clearly, such an investment cannot be a balanced one. If an economy makes the mistake of setting out to make a balanced investment, a new imbalance is likely to appear which will require still another "balancing investment" to bring equilibrium, and so on and so forth.
Hirschman believed that Nurkse's balanced growth theory wasn't in fact a theory of growth. Growth implies the gradual transformation of an economy from one stage to the chronologically next stage. It entails the series of actions which leads the economy from a stage of infancy to that of maturity. However, the balanced growth theory involves the creation of a brand new, self-sufficient modern industrial economy being layed over a stagnant, self-sufficient traditional economy. Thus, there is no transformation. In reality, a Dual economy
will come into existence, where two separate economic sectors will begin to coexist in one country. They will differ on levels of development, technology and demand patterns. This will create a great degree of inequality in the country.
Ragnar Nurkse
Ragnar Nurkse was an Estonian international economist and policy maker mainly in the fields of international finance and economic development.-Life:...
(1907–1959). The theory hypothesises that the government of any underdeveloped country needs to make large investments in a number of industries simultaneously. This would consequently enlarge the market size and provide an incentive for the private sector to invest.
Ragnar Nurkse was in favour of attaining balanced growth in both the industrial and agricultural sectors of the economy. He recognised that the expansion and inter-sectoral balance between agriculture and manufacturing is necessary so that each of these sectors provides a market for the products of the other and in turn, supplies the necessary raw materials for the development and growth of the other.
Nurkse and Paul Rosenstein-Rodan
Paul Rosenstein-Rodan
Paul Narcyz Rosenstein-Rodan was an Austrian economists of Polish-Jewish origin born in Kraków, who was trained in the Austrian tradition under Hans Mayer in Vienna...
were the pioneers of balanced growth theory and much of how it is understood today dates back to their work.
Size of market and inducement to invest
Ragnar Nurkse referenced the work of Allyn A. Young to assert that inducement to invest is limited by the size of the market. The original idea behind this was put forward by Adam SmithAdam Smith
Adam Smith was a Scottish social philosopher and a pioneer of political economy. One of the key figures of the Scottish Enlightenment, Smith is the author of The Theory of Moral Sentiments and An Inquiry into the Nature and Causes of the Wealth of Nations...
, who stated that division of labour
Division of labour
Division of labour is the specialisation of cooperative labour in specific, circumscribed tasks and likeroles. Historically an increasingly complex division of labour is closely associated with the growth of total output and trade, the rise of capitalism, and of the complexity of industrialisation...
is limited by the extent of the market.
According to Nurkse, underdeveloped countries lack adequate purchasing power
Purchasing power
Purchasing power is the number of goods/services that can be purchased with a unit of currency. For example, if you had taken one dollar to a store in the 1950s, you would have been able to buy a greater number of items than you would today, indicating that you would have had a greater purchasing...
. Low purchasing power means that the real income of the people is on the lower side, although in monetary terms it may be high. Had the money income been low, the problem could easily have been overcome by expanding the supply of money. But since the meaning in this context is real income, expanding the money supply
Money supply
In economics, the money supply or money stock, is the total amount of money available in an economy at a specific time. There are several ways to define "money," but standard measures usually include currency in circulation and demand deposits .Money supply data are recorded and published, usually...
will only generate inflationary pressure. Neither real output nor real investment will rise. It is to be noted that a low purchasing power would mean that domestic demand
Demand
- Economics :*Demand , the desire to own something and the ability to pay for it*Demand curve, a graphic representation of a demand schedule*Demand deposit, the money in checking accounts...
for commodities is low. Apart from encompassing consumer goods and services, this includes the demand for capital
Capital (economics)
In economics, capital, capital goods, or real capital refers to already-produced durable goods used in production of goods or services. The capital goods are not significantly consumed, though they may depreciate in the production process...
too.
The size of the market determines the incentive to invest irrespective of the nature of the economy. This is because entrepreneurs invariably take their production decisions by taking into consideration the demand for the concerned product. For example, if an automobile manufacturer is trying to decide which countries to set up plants in, he will naturally only invest in those countries where the demand is high. He would prefer to invest in a developed country, where though the population is lesser than in underdeveloped countries, the people are prosperous and there is a definite demand.
Private entrepreneurs sometimes resort to heavy advertising
Advertising
Advertising is a form of communication used to persuade an audience to take some action with respect to products, ideas, or services. Most commonly, the desired result is to drive consumer behavior with respect to a commercial offering, although political and ideological advertising is also common...
as a means of attracting buyers for their products. Although this may lead to a rise in demand for that entrepreneur's good or service, it does not actually raise the aggregate demand
Aggregate demand
In macroeconomics, aggregate demand is the total demand for final goods and services in the economy at a given time and price level. It is the amount of goods and services in the economy that will be purchased at all possible price levels. This is the demand for the gross domestic product of a...
in the economy. The demand merely shifts from one provider to another. Clearly, this is not a long-term solution.
Ragnar Nurkse concluded,
Determinants of size of market
According to Nurkse, expanding the size of the market is crucial to increasing the inducement to invest. Only then can the vicious circle of poverty break. He mentioned the following pertinent points about how the size of the market is determined:Money supply
Nurkse emphasised that Keynesian theory shouldn't be applied to underdeveloped countries because they don't face a lack of effective demandEffective demand
In economics, effective demand in a market is the demand for a product or service which occurs when purchasers are constrained in a different market. It contrasts with notional demand, which is the demand that occurs when purchasers are not constrained in any other market...
in the way that developed countries do. Their problem is to do with a lack of real purchasing power
Purchasing power
Purchasing power is the number of goods/services that can be purchased with a unit of currency. For example, if you had taken one dollar to a store in the 1950s, you would have been able to buy a greater number of items than you would today, indicating that you would have had a greater purchasing...
due to low productivity levels. Thus, merely increasing the supply of money will not expand the market but will in fact cause inflationary pressure.
Population
Nurkse argued against the notion that a large population implies a large market. Though underdeveloped countries have a large population, their levels of productivity are low. This results in low levels of per capita real incomes. Thus, consumption expenditure is low, and savings are either very low or completely absent. On the other hand, developed countries have smaller populations than underdeveloped countries but by virtue of high levels of productivity, their per capita real incomes are higher and thus they create a large market for goods and services.Geographical area
Nurkse also refuted the claim that if a country's geographical area is large, the size of its market also ought to be large. A country may be extremely small in area but still have a large effective demand. For example, Japan. In contrast, a country may cover a huge geographical area but its market may still be small. This may occur if a large part of the country is uninhabitable, or if the country suffers from low productivity levels and thus has a low National Income.Transport cost and trade barriers
The notion that transport costs and trade barriers hinder the expansion of the market is age-old. Nurkse emphasised that tariffTariff
A tariff may be either tax on imports or exports , or a list or schedule of prices for such things as rail service, bus routes, and electrical usage ....
duties, exchange controls, import quotas and other non-tariff barriers to trade
Non-tariff barriers to trade
Non-tariff barriers to trade are trade barriers that restrict imports but are not in the usual form of a tariff. Some common examples of NTB's are anti-dumping measures and countervailing duties, which, although they are called "non-tariff" barriers, have the effect of tariffs once they are...
are major obstacles to promoting international cooperation in exporting and importing. More specifically, due to high transport costs between nations, producers do not have an incentive to export their commodities. As a result, the amount of capital accumulation
Capital accumulation
The accumulation of capital refers to the gathering or amassing of objects of value; the increase in wealth through concentration; or the creation of wealth. Capital is money or a financial asset invested for the purpose of making more money...
remains small. To address this problem, the United Nations came out with a report in 1951 with solutions for underdeveloped countries. They suggested that they can expand their markets by forming customs unions with their neighbouring countries. Also, they can adopt the system of preferential taxation or even abolishing customs duties altogether. The logic was that once customs duties are removed, transport costs will fall. Consequently, prices will fall and thus the demand will rise. Nurkse did not agree with this view though, he was an export pessimist.
Sales promotion
Often, it is true that a company's private endeavour to increase the demand for its products succeeds due to the extensive use of advertisement and other sales promotion technique. However, Nurkse argues that such activities cannot succeed at the macro level to increase a country's aggregate demand level. He calls this the "macroeconomic paradox".Productivity
Nurkse stressed on productivity as the primary determinant of the size of the market. An increase in productivity (defined as the output per unit input) increases the flow of goods and services in the economy. As a response, consumption also rises. Hence, underdeveloped economies should aim to raise their productivity levels in all sectors of the economy, in particular agriculture and industry.For example, in most underdeveloped economies, the technology used to carry out agricultural activities is usually backward. There is a low degree of mechanisation coupled with rain dependence. So while a large proportion of the population (70-80%) may be actively employed in the agriculture sector, the contribution to the Gross Domestic Product may be as low as 40%. This points to the need to increase output per unit input and output per head. This can be done if the government provides irrigation facilities, high-yielding variety seeds, pesticides, fertilisers, tractors etc. The positive outcome of this is that farmers earn more income and have a higher purchasing power (real income). Their demand for other products in the economy will rise and this will provide industrialists an incentive to invest in that country. Thus, the size of the market expands and improves the condition of the underdeveloped country.
Nurkse is of the opinion that Say's Law
Say's law
Say's law, or the law of market, is an economic principle of classical economics named after the French businessman and economist Jean-Baptiste Say , who stated that "products are paid for with products" and "a glut can take place only when there are too many means of production applied to one kind...
of markets operates in underdeveloped countries. Thus, if the money incomes of the people rise while the price level in the economy stays the same, the size of the market will still not expand till the real income and productivity levels rise. To quote Nurkse,
Export pessimism
Citing the limited size of the market as the main impediment in economic growth, Nurkse reasons that an increase in productivity can create the virtuous circle of growthVirtuous circle and vicious circle
A virtuous circle and a vicious circle are economic terms. They refer to a complex of events that reinforces itself through a feedback loop. A virtuous circle has favorable results, while a vicious circle has detrimental results...
. Thus, a large scale investment programme in a wide array of industries simultaneously is the answer. The increase in demand for one industry will lead to an increase in demand for another industry due to complementarity of demands. As Say's Law states, supply creates its own demand.
However, Nurkse clarified that the finance for this development must arise to as large an extent as possible from the underdeveloped country itself i.e. domestically. He stated that financing through increased trade or foreign investments was a strategy used in the past - the 19th century - and was limited to the case of the United States of America. In reality, the so called "new countries" which separated from the British empire were high income countries to begin with. They were already endowed with efficient producers, effective markets and a high purchasing power. The point Nurkse was trying to make was that USA was rich in resource endowment as well as labour force. The labour force had merely migrated from Britain to USA, and thus their level of skills were advanced to begin with. Thus, the circumstances made the situation unique and so, not replicable by underdeveloped countries.
In fact, if such a strategy of financing development from outside the home country is undertaken, it creates a number of problems. For example, the foreign investors may carelessly misuse the resources of the underdeveloped country. This would in turn limit that economy's ability to diversify, especially if natural resources are plundered. This may also create a distorted social structure. Apart from this, there is also a risk that the foreign investments may be used to finance private luxury consumption. People would try to imitate Western consumption habits and thus a Balance of payments crisis may develop, along with economic inequality within the population.
Another reason exports cannot be promoted is because in all likelihood, an underdeveloped country may only be skilled enough to promote the export of primary goods, say agricultural goods. But, such commodities face inelastic demand. Thus, the extent to which they will sell in the market is limited. Although when population is at a rise, additional demand for exports may be created, Nurkse implicitly assumed that developed countries are operating at the replacement rate of population growth. Thus, this route of economic development is completely ruled out.
Thus, for a large-scale development to be feasible, the requisite capital must be generated from within the country itself, and not through export surplus or foreign investment. Only then can productivity increase and lead to increasing returns to scale and eventually create virtuous circles of growth.
Role of state
Post world war IIWorld War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...
, a debate about whether a country should introduce financial planning to develop itself or rely on private entrepreneurs emerged. 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 in question. However, it should be noted that most economists who favoured the balanced growth hypothesis believed that only the state has the capacity to take on the kind of heavy investments the theory propagates. Further, the gestation period of such lumpy investments is usually long and normally, private sector entrepreneurs do not undertake such high risk.
Reactions
Like all theories, Ragnar Nurkse's Balanced Growth Theory too was criticised on a number of grounds. His main critic was Albert O. HirschmanAlbert O. Hirschman
Albert Otto Hirschman is an influential economist who has authored several books on political economy and political ideology. His first major contribution was in the area of development economics. Here he emphasized the need for unbalanced growth...
, the pioneer of the Strategy of unbalanced growth
Strategy of unbalanced growth
Unbalanced growth is a natural path of development. Undeveloped countries start from a position that reflects their predecessor's previous investment decisions and development. Accordingly at any point of time they are highly desirable investment programs which are not in themselves balanced...
. Hans W. Singer also criticised the theory on certain aspects.
Hirschman stressed upon 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 not one, but many industries of its economy, that too simultaneously is a far cry from reality due to the paucity of resources. To quote Hirschman,
Hans Singer asserted that the balanced growth theory is more applicable to cure an economy facing a cyclical downswing. Clearly, a cyclical downswing is a feature of an advanced stage of sustained growth rather than of the vicious cycle of poverty.
Hirschman too stated that during conditions of slack activity in developed countries, the stock of resources, machines and entrepreneurs are merely unemployed. They are present as idle capacity. So in this situation, simultaneous investment in a large number of sectors is a well-suited policy. The various economic agents are temporarily unemployed and once the inducement to invest starts operating, the slump will be overcome. However, for an underdeveloped economy, where such resources are absent, this principle doesn't fit in.
Another contention was Nurkse's approval of Say's Law
Say's law
Say's law, or the law of market, is an economic principle of classical economics named after the French businessman and economist Jean-Baptiste Say , who stated that "products are paid for with products" and "a glut can take place only when there are too many means of production applied to one kind...
. The law theorises that there is no overproduction
Overproduction
In economics, overproduction, oversupply or excess of supply refers to excess of supply over demand of products being offered to the market...
or glut in the economy. Supply (production of goods and services) creates a matching demand for the output and this results in the entire output being sold and consumed. However, Keynes stated that Say's Law is not operational in any country because people do not spend their entire income - a fraction of it is saved for future consumption. Thus, Nurkse's assumption of Say's Law being operational in underdeveloped countries too is false. Even if the section of savers is few, the tenet of putting emphasis on supply rather than demand has been widely discredited.
Nurkse states that if demand for the output of one sector rises, due to the complementary nature of demand, the demand for the output of other industries will also experience a rise. However, he has failed to take into consideration the fact that not all industries produce complementary goods. There are substitute goods too, which are in competition with each other. Thus if the state pumps in large investments into say, the car industry, it will naturally lead to a rise in the demand for petrol. But in case the state makes large scale investments in the coffee sector of a country, the tea sector will suffer.
Hans Singer pointed out that Nurkse's theory makes dubious assumptions about the underdeveloped economy. For example, Nurkse assumes that the economy starts with nothing at hand. However, this is not true. The economy starts at a position which reflects the previous investment decisions undertaken in the country. Thus, at any given moment, an imbalance already exists. So the logical step would be to take on those investment programmes which compliment the existing imbalance in the economy. Clearly, such an investment cannot be a balanced one. If an economy makes the mistake of setting out to make a balanced investment, a new imbalance is likely to appear which will require still another "balancing investment" to bring equilibrium, and so on and so forth.
Hirschman believed that Nurkse's balanced growth theory wasn't in fact a theory of growth. Growth implies the gradual transformation of an economy from one stage to the chronologically next stage. It entails the series of actions which leads the economy from a stage of infancy to that of maturity. However, the balanced growth theory involves the creation of a brand new, self-sufficient modern industrial economy being layed over a stagnant, self-sufficient traditional economy. Thus, there is no transformation. In reality, a Dual economy
Dual economy
A dual economy is the existence of two separate economic sectors within one country, divided by different levels of development, technology, and different patterns of demand...
will come into existence, where two separate economic sectors will begin to coexist in one country. They will differ on levels of development, technology and demand patterns. This will create a great degree of inequality in the country.
See also
- Big push modelBig Push ModelThe big push model is a concept in development economics or welfare economics that emphasizes the fact that a firm's decision whether to industrialize or not depends on its expectation of what other firms will do...
- Rostow's stages of growth
- Critical minimum effort theoryCritical minimum effort theoryThe critical minimum effort theory has been given by Harvey Leibenstein, in his book Economic Backwardness and Economic Growth. This theory relates to overpopulated and underdeveloped or developing nations such as India and Indonesia.This theory is based on Malthusian theory of population. This...
- Strategy of unbalanced growthStrategy of unbalanced growthUnbalanced growth is a natural path of development. Undeveloped countries start from a position that reflects their predecessor's previous investment decisions and development. Accordingly at any point of time they are highly desirable investment programs which are not in themselves balanced...
- Low level equilibrium trap