This can be realised through the injection of an initial big dose of a certain size of investment. . Once the process of development by an initial application of ‘big push’ is underway, its sequel course would tend to follow simultaneously three sets of balanced growth relations. Therefore, the incentives to invest will be adversely affected. Investment below a certain level will be a mere wastage and will not enable the economy to break the vicious circle of poverty. workers in the economy and The mutual benefits arising from the external economies for industrialisation cannot be included in the cost calculations of entrepreneurs to the fullest possible extent without recourse to some sort of centralized ‘balanced growth’ planning. A ‘bit by bit’ approach to development would not enable the economy to cross over certain indivisible economic obstacles to development. These arise from the interdependence in market economies. / But each of the individual investment projects undertaken singly may not fructify at all. But investment in social overhead capital comprises investment in all basic industries (like power, transport or communications) which must necessarily come before directly productive investment activities. The “big push” argument portrays aid as the necessary catalyst for investment that would, in turn, lead to growth and presumably initialize an upward path to economic development. The production function of the modern sector is steeper than that of the traditional sector because of the higher productivity of workers in the former. Therefore, any strategy of economic development that relies basically upon the philosophy of economic “gradualism” is bound to be frustrated. [3], Pecuniary economies are external economies transmitted through the price system, as prices are the signalling device (under conditions of perfect competition in a market economy). Due to this, there is no incentive for individual entrepreneurs to invest and take advantage of external economies.[1]. It is, therefore, quite doubtful whether the government sponsored brand of communication system about the future events would at all be more effective than the free price mechanism. The most important effect of jumping over this indivisibility is the “investment opportunities created in other industries”. To avoid such a situation, investment must be spread out amongst different industries. We have an economy with a large number of sectors. / It assumes economies of scale and oligopolistic market structure and explains when industrialization would happen. With our assumption of Small investment cannot break the vicious cycle. We have an economy with a large number of sectors. Therefore, heavy initial investment necessarily needs to be made in social overhead capital (this is approximated to be about 30 to 40 percent of the total investment undertaken by underdeveloped countries). If all the workers are employed by the traditional sector, then the demand generated for the output of each sector is Launching a country into self-sustaining growth is a little like getting an airplane off the ground. Theory of Big Push: By Rosenstein Rodan; A Theory of Balanced Growth (Economics) Rationale Behind the Theory. But even if the world market acts as a substitute for domestic demand, a big push is still needed (though its required size may now be reduced due to the presence of international trade). Any neglect of the agricultural sector in these countries is bound to jeopardise the ‘big push’ effort. , where This is so because not often, the public and private sectors rather than being complementary are in fact competitive with each other. Big Push Theory . Thus, it may so happen that the “private enterprise is inhibited by uncertainties not only about the general economic situation but also about the future intention of the government regulations.”, Thus, it is quite clear that the application of a ‘big push’ programme in the developing countries with their weak and incompetent institutional and administrative machinery is likely to die its own death. Big Push Theory: This theory is given by Paul Rosenstein-Rodan. External economies are … In this regard he is of the view that international trade cannot be a substitute for “big push.” The provision of some of the needed wage goods through imports can at best help in narrowing down the range of fields which call for a ‘big push’. In a closed economy, modernization and increased efficiency in a single industry has no impact on the economy as a whole since the output of that industry will fail to find a market. Let us assume that there are The manufacturing sector is considered inherently to be a better vehicle of economic growth. {\displaystyle {1}/{m}} Based on the idea of external economies. Only then the way for a self-generating economy can be paved. A big thrust of a certain minimum size is needed in order to overcome the various discontinuities and indivisibilities in the economy and offset the diseconomies of scale that may arise once development begins. Answer and Explanation: The infrastructures generally last long. The basic reason for government action to promote development is that each of a set of individual private investment decisions may seem unattractive in itself, whereas a large scale investment program undertaken as a unit may yield substantial increase in national income.” Prof. Rosenstein-Rodan’s theory is essentially a theory of development and thus helps us to examine the path towards development rather than restricting itself simply to the study of conditions at the point of equilibrium. If a country makes large investments in the shoe industry, all the disguisedly employed labor from the other industries find work and a source of income, leading to a rise in production of shoes and their own incomes. Besides, on account of the poor and incompetent institutional set-ups of the developing countries, there is bound to be insufficient knowledge about the local conditions and an “inefficient feedback of this vital local knowledge from different parts of the country to the central planning machinery.” Mere improvement in the standard type of statistical information would not remedy all this. (ii) Indivisibility of demand, i.e., complementarity of demand. A certain minimum of initial speed is essential if at all the race is to be run. The ‘big push’ theory recommends a ‘starting from scratch’ concerted action in the creation of social overheads. Today, as then, the Big Push recommendation n (iii) Indivisibility of savings, i.e., kink in the supply of savings. The big push model is a concept in development economics or welfare economics that emphasizes that a firm's decision whether to industrialize or not depends on its expectation of what other firms will do. It assumes economies of scale and oligopolistic market structure and explains when industrialization would happen. The actual fact of the matter is that the current institutional and administrative set-up of the government machinery of the poor developing countries is too weak to cope with the dictates of the ‘big push’ theory. Even if the private sector had the requisite resources to invest in such a programme, it would not do so since it is driven by profit motives. Thus, a big push through a minimum indivisible step forward in the form of a high minimum quantity of investment could alone make it possible to jump over the economic obstacles to development in the underdeveloped countries. The most important case of indivisibilities and external economies on the supply side resides in the social overhead capital which is now called infrastructure. Using traditional technology, a sector would produce In terms of products too (as in the above example of industries X and Y), one industry generates demand for the output of the other when the scale of operations increase.[6]. Government intervention in a manner that investment is carried out on those industries that have higher forward and backward linkages. Disclaimer Copyright, Share Your Knowledge That, according to the big push theory, is the only reliable way of overcoming the smallness of the market size and low inducement to invest in the developing economies. 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