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BALANCED GROWTH

STRATEGY

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Balanced Growth

This concept is subject to various interpretationsby various authors.

It was Ferderick List who put forward first time.

Rugnar Nurkse ,Arthur Lewis,,A Young andRoseintien Rodan advocated the balance growthstrategy

Thesynchronised application of capital to a widerange of different industries

- Nafziger (1990, p. 85)

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Balanced Growth

Balanced growth requires balance betweendifferent consumer goods & capital goodsindustries, balance between industry andagriculture,between domestic & exportsector

There should be simultaneous andharmonious development of different

sectors of the economy so that all sectorsgrow in unison

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Two Versions

1. A critical minimum effort is required toovercome indivisibilities in the productiveprocesses on both the demand and supply

side of the market, i.e. BigPush (Rosenstein-Rodan and Nurkse)

or

2. The path of development and the pattern ofinvestment must be balanced between thesectors of the economy to ensure its smooth

functioning.(Nurkse and Lewis)

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SectoralBalance

Balance inDemand

Side

Balance inSupply

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Balance in Supply Side

The supply side lays emphasis onsimultaneous development of allinterrelated sectors which lead to

development of intermediate goods,rawmaterials,power,agriculture,irrigation andtransport and all producing consumer

goods.

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The demand side

Complimentarity Of IndustriesThe demand side relates to the provision forlarger employment opportunities and increasingincome so that demand for goods and services may

rise on the part of the people.When investment is made in a number ofindustries at a time the generated income couldprovide demand for one anothers product and

further create investment.Demand side is related to supplementaryindustries

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Sectoral balance

A balanced development in all the sectorsbeing interdependent of various sectors in aneconomy

As agriculture & Industry are complementaryto each other expansion of industry willrequire expansion of agriculture and viceversa.

A balance between domestic trade and foreigntrade become essential

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Balance between agriculture and

Industry

An increase in industrial production will alsorequire an expansion in agricultural production

The growth of one sector creates externaleconomies for other sectors

For eg the growth of jute industry dependsupon the availability of raw jute

Agricultural improvements are possible through

industrial development as it provides a solidtechnical base for modern agriculture

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Balance between Investment in Human

Capital and Investment in material

OutputIn underdeveloped countries a balancebetween investment in human capital andmaterial capital is required.

Investment in human capital improves thequality of man power and rise in in realpercapita income

Investment on material and human capitalwill help to raise capital formation

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Balance between Domestic and Foreign

Trade

Domestic trade creates marketable surplusthat leads to the expansion of foreigntrade

Following steps are required Restriction must be imposed on import of

luxury goods

Govt should make consistent efforts to earnmore foreign exchange for the promotion ofexport and reduction in imports

Underdeveloped countries should re shape the

tariff policy in accordance to its requirements

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Views of Rosenstein-Rodan

Paul Rosenstein-Rodan

1902 - 1985

Rosenstein-Rodan was initially

concerned with the post wardevelopment of Eastern and SouthEastern Europe He argued that industrialisation

was the only way to alleviate the25% unemployment rate due toexcess agricultural workers However, he believed that suchinvestment would not occurwithout co-ordinationIf investment is not madesimultaneously in other sectors ofthe economy productivity of other

industries will not expand

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Views of Rosenstein-Rodan

Paul Rosenstein-Rodan

1902 - 1985

His main contention is that

SMP(Social marginal product) of aninvestment is different from itsPMP(Private Marginal Product).

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NURKSEs Views

Ragnar Nurkse1907 - 1959

Nurkse followed up on Rosenstein-Rodans thesis

He embraced BigPush theory, butargued that coordination could alsobe achieved by private agents, i.e.banks.

His contribution was to assert theimportance of achieving balancebetween different sectors of theeconomy

Balanced Growth is required tobreak the vicious circle of poverty.

Vicious circle of poverty can bebroken by enlarging the market size

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NURKSEs Views

Ragnar Nurkse1907 - 1959

The market can be enlarged bymonetary expansion by salesman

ship and advertisement &expanding social overheadsie.infrastructures

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A Balanced Economy

Nurkse was concerned with the path ofdevelopment and the pattern of investment

He argued that these should be of such a naturethat growth is balanced between different sectors

such that no bottlenecks or excess capacity arise

Integral to this proposition is the notion that theagricultural and industrial sectors must be balanced

=

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Benefits of balanced growth

Balanced regionalgrowth

Division of labour

Possibilities ofinnovations &Research

Better use ofnatural resources

Less dependenceon Foreigners

Stability in Prices

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Criticisms of balanced growth

Rise in Costs

WrongAssumptions

AdministrativeDifficulties

Danger of inflation Inadequacy of

resources

More suitable toadvanced countries

Deficiency ofcapital