Scribd
Upload
6K views

Big Push Theory of Development

Big-Push theory argues that a large, coordinated investment is needed to overcome obstacles to development in underdeveloped economies. This is due to three types of indivisibilities: 1) production requires a minimum level of infrastructure investment before other industries can develop, 2) demand is insufficient unless many complementary industries develop simultaneously, and 3) savings are too low unless income and investment rise together substantially. The theory maintains that only a coordinated, minimum-scale "big push" of investment across many industries can generate the external economies necessary to launch self-sustaining growth.

Uploaded by

Pankaj Patil
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
6K views

Big Push Theory of Development

Big-Push theory argues that a large, coordinated investment is needed to overcome obstacles to development in underdeveloped economies. This is due to three types of indivisibilities: 1) production requires a minimum level of infrastructure investment before other industries can develop, 2) demand is insufficient unless many complementary industries develop simultaneously, and 3) savings are too low unless income and investment rise together substantially. The theory maintains that only a coordinated, minimum-scale "big push" of investment across many industries can generate the external economies necessary to launch self-sustaining growth.

Uploaded by

Pankaj Patil
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 2

What is Big-Push theory of economic

development?
Big-Push theory of economic development
The theory of "bigh push' is associated with the name of Professor Paul N. Rosenstein-Rodan.
This theory is needed in the form of a high minimum amount of investment to overcome to
obstacles to development in an underdeveloped economy and to launch it in the path of
progress.
Rosenstein-Rodan distinguishes between three different kinds of indivisibilities and external
economies. One, indivisibilities in the production function, especially the indivisibility of the
supply of social overhead capital; two, indivisibility of demand; and three, indivisibility in
the supply of savings. Let us analyse the role of these indivisibilities in bringing economic
development.
Indivisibilities in the Production Function :
According to Rosenstein-Rodan, indivisibilities of inputs, outputs or processes lead to
increasing returns. He regards social overhead capital as the most important instance of
indivisibility and hence of external economies on the supply side.
The services of social-overhead capital comprising basic industries like power, transport, and
communications are indirectly productive and have a long gestation period. They cannot be
imported installations require a "sizeable initial lump" of investment. So excess capacity is
likely to remain in them for some time.
They also excess "an irreducible minimum industry mix of different public ties, so that an
underdeveloped country will have to invest between K per cent of its total investment in these
channels.
"Thus, social overhead capital is characterised by four indivisibilities, of, it is irreversible in
time and, therefore, must precede other directly productive investments. Second, it has a
minimum durability, is making it very lumpy.
Third, it has a long gestation period. Last, it is an irreducible minimum industry mix of
different kinds of public utilities. These indivisibilities of supply of social overhead capital
are all of the principal obstacles to development in underdeveloped countries.
Therefore, a high initial investment in social overhead capital necessary in order to pave the
way for quick-yielding directly productive investments.
Indivisibility of Demand:

The indivisibility or complementarily of demand requires simultaneous setting up of


interdependent industries in interdependent countries.
This is because individual investment projects have high risks as low incomes limit the
demand for their products. To illustrate, Rosenstein- Rodan takes first a closed economy
where a hundred disguised unemployed workers are employed in a shoe factory whose wages
constitute an additional income.
If these workers spend all their income on shoes they manufacture, the shoe market will have
a regular demand and thus succeed. But the fact is that they would not like to spend all their
additional income on shoes, human wants being diverse. Nor will the people outside the
factory buy-additional shoes when they are poor.
Thus, the new factory will be abandoned for want of an adequate market. To vary the
example, suppose that ten thousand unemployed workers are engaged in one hundred
factories (instead of hundred workers in one factory) that produce a variety of consumer
goods and spend their wages on buying them.
The new producers would be each others' customers and thus create market for their goods.
The complementarily of demand reduces the risk of finding a market and increases the
incentive to invest.
In other words, it is the indivisibility of demand which necessitates a high minimum quantum
of investment in interdependent industries to enlarge the size of the market.
Indivisibility in the Supply of Savings:
A high income elasticity of saving is the third indivisibility in Rosenstein's theory. A high
minimum size of investment requires a high volume of savings.
This is not easy to achieve in underdeveloped countries because of low incomes. To
overcome this, it is essential that when incomes increase due to an increase in investment, the
marginal rate of saving should be very much higher than the average rate of saving.
Given these three indivisibilities and the external economies to which they give rise, a "big
push" or a minimum quantum of investment is required to overcome the obstacles to
development in underdeveloped countries.
"There may be finally a phenomenon of indivisibility in the vigour and drive required for a
successful development policy," writes Rodan. But proceeding bit by bit in an isolated and
small way does not lead to a sufficient impact on growth. A climate for development is only
created when investment of a minimum speed or size is made within an underdeveloped
economy.

You might also like