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Unbalanced Growth Model

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In today’s competitive world, there is an aspiration for every country to reach the ‘developed’ domain. Some countries have achieved it while some are still on the process and some have yet a long way to go. And it is during this process that the question of whether ‘balanced or unbalanced growth strategies’ comes into play. There are two types of models: balanced and unbalanced. Rodenstein-Rodan, Ragnar Nurkse and Lewis were the main proponents of balanced growth theory while it was Albert Hirschman and Paul Streeten for unbalanced growth theory. Balanced growth model advocates investing in setting up of large scale industries simultaneously in order to overcome differences within different sectors of the economy. One version (Nurkse) of …show more content…

The first proposition says that it is necessary to start with a minimum size of investment for a number of different types of mutually supporting enterprise in order to instigate a successful development process. The second proposition says that the supply of all outputs at all stages of production should expand at the same rate as the demand for them in order to avoid shortages. The third proposition talks about how the overall profitability of investments appear to be higher than that of sum total profitability of individual investments taken separately when the investments in a number of interrelated lines are planned together. A limited market will not be economically viable and will reduce the profitability of goods. On the other hand, if several industries are set up simultaneously, each could provide a market for other’s products and can become profitable. But it is not favorable or possible for developing or less developed countries to follow the path of balanced growth alone. There are certain flaws or disadvantages that balanced theory faces- • One of the main criticisms against balanced growth theory is that if the country has a shortage of resources, it will not give an adequate incentive for the mobilization of resources or inducement to invest. • Large scale investment is not the only way for expanding domestic market …show more content…

Backward linkages are the proportion of an activity’s output that represents purchase from other domestic activities while forward linkages refer to the outputs that do not go into the final demand but act as inputs for other activities. Industries or sectors with the highest combined linkages are encouraged as they will provide the greatest incentive for other activities to develop. The two reasons for taking up unbalanced growth strategy are: the advantage of large scale production associated with concentration of resources and the benefits derived from concentrating resources on those lines of production suited for development which may provide some favorable resource combinations. There are certain flaws within unbalanced growth theory as well- • One of the important disadvantages of unbalanced growth is that it leaves most of the things to chance. It is left to the whims and fancies of entrepreneurs. • It does not ensure income distribution. • There can be discrepancies between private and social profitability of development projects. • Role of government is ignored. • It can have harmful effects on balance of payments if goods are price inelastic and income inelastic in demand. • Imbalances can be a powerful source of inflationary

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