BALANCED GROWTH STRATEGY

Balanced Growth
This concept is subject to various interpretations by various authors. It was Ferderick List who put forward first time. Rugnar Nurkse ,Arthur Lewis,,A Young and Roseintien Rodan advocated the balance growth strategy

The synchronised application of capital to a wide range of different industries

- Nafziger (1990, p. 85)

Balanced Growth
Balanced growth requires balance between different consumer goods & capital goods industries, balance between industry and agriculture,between domestic & export sector

There should be simultaneous and harmonious development of different sectors of the economy so that all sectors grow in unison

Two Versions
1. A critical minimum effort is required to overcome indivisibilities in the productive processes on both the demand and supply side of the market, i.e. Big Push (RosensteinRodan and Nurkse) or 2. The path of development and the pattern of investment must be balanced between the sectors of the economy to ensure its smooth functioning. (Nurkse and Lewis)

Balance in Supply

Balance in Demand Side

Sectoral Balance

Balance in Supply Side

The supply side lays emphasis on simultaneous development of all interrelated sectors which lead to development of intermediate goods,raw materials,power,agriculture,irrigation and transport and all producing consumer goods.

The demand side Complimentarity Of Industries

The demand side relates to the provision for larger employment opportunities and increasing income so that demand for goods and services may rise on the part of the people. When investment is made in a number of industries at a time the generated income could provide demand for one anothers product and further create investment. Demand side industries is related to supplementary

Sectoral balance
A balanced development in all the sectors being interdependent of various sectors in an economy
As agriculture & Industry are complementary to each other expansion of industry will require expansion of agriculture and vice versa.

A balance between domestic trade and foreign trade become essential

Balance between agriculture and Industry

An increase in industrial production will also require an expansion in agricultural production

The growth of one sector creates external economies for other sectors
For eg the growth of jute industry depends upon the availability of raw jute Agricultural improvements are possible through industrial development as it provides a solid technical base for modern agriculture

Balance between Investment in Human Capital and Investment in material Output

In underdeveloped countries a balance between investment in human capital and material capital is required. Investment in human capital improves the quality of man power and rise in in real percapita income Investment on material and human capital will help to raise capital formation

Balance between Domestic and Foreign Trade Domestic trade creates marketable surplus that leads to the expansion of foreign trade Following steps are required

Restriction must be imposed on import of luxury goods Govt should make consistent efforts to earn more foreign exchange for the promotion of export and reduction in imports Underdeveloped countries should re shape the tariff policy in accordance to its requirements

 Rosenstein-Rodan was initially concerned with the post war development of Eastern and South Eastern Europe He argued that industrialisation was the only way to alleviate the 25% unemployment rate due to excess agricultural workers However, he believed that such investment would not occur without co-ordination If investment is not made simultaneously in other sectors of Paul Rosenstein-Rodan the economy productivity of other 1902 - 1985 industries will not expand

Views of Rosenstein-Rodan

Views of Rosenstein-Rodan

His main contention is that SMP(Social marginal product) of an investment is different from its PMP(Private Marginal Product).

Paul Rosenstein-Rodan 1902 - 1985

NURKSEs Views

Nurkse followed up on RosensteinRodans thesis He embraced Big Push theory, but argued that coordination could also be achieved by private agents, i.e. banks. His contribution was to assert the importance of achieving balance between different sectors of the economy

Balanced Growth is required to break the vicious circle of poverty.

Ragnar Nurkse 1907 - 1959

Vicious circle of poverty can be broken by enlarging the market size

NURKSEs Views

The market can be enlarged by monetary expansion by salesman ship and advertisement & expanding social overheads ie.infrastructures

Ragnar Nurkse 1907 - 1959

A Balanced Economy
Nurkse was concerned with the path development and the pattern of investment of

He argued that these should be of such a nature that growth is balanced between different sectors such that no bottlenecks or excess capacity arise

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

Benefits of balanced growth

Balanced regional growth Division of labour Possibilities of innovations & Research Better use of natural resources

Less dependence on Foreigners Stability in Prices

Criticisms of balanced growth

Rise in Costs Wrong Assumptions Administrative Difficulties Danger of inflation Inadequacy of resources

More suitable to advanced countries Deficiency of capital