Theory of unbalanced growth

Prof. A.O. Hirschman
ANJALI SINGH

 This theory suggests to select priority sectors or
strategic sectors and invest heavily on them and
the other sectors would automatically develop.
 As UDCs are not capable of investing in all the
sectors simultaneously due to lack of resources and
many other factors.
 The best strategy of development is the creation of
imbalances in the economy, since it is observed
that the efforts to correct disequilibrium
constitutes a major step for the progress of
economy.
ANJALI SINGH

 Investment should me made in some sectors
rather than all.
 According to hirschman, development Is a chain
of disequilibrium which must be kept alive rather
than eliminate the disequilibrium of which profits
and losses are symptoms in a comptt. Economy.
 If the economy is to be kept moving ahead, the
task of development policy is to maintain
tensions, disproportions and disequilibrium.
ANJALI SINGH

 Convergent Series of Investment : it implies
sequence of creation and appropriation of external
economies. Therefore, investment made in these
projects appropriate more economies than they
create.
 Influenced by profit motive.
 Undertaken by the Private entrepreneurs.
 Convergent series of investment are made directly
productive activities.
 Directly productive activities include
manufacturing.
ANJALI SINGH

 Divergent Series of Investment : It refers to those
projects which appropriate less economies then
they create.
 Influenced by objective of social desirability.
 Such investments are taken up by Public agencies
 divergent series of Investment have greater social
desirability in social overhead.
 SOC implies all those basic services without which
primary, secondary and tertiary productive
activities cannot function.
 It includes investment in education, public health,
public utilities, infrastructure development
ANJALI SINGH

 Hirschman Says, a choice has to be made
between SOCs and DPAs.
ANJALI SINGH

 The correct approach for economic development
is, to unbalance the economy to initiate
investment in SOC.
 Some SOC investment is required as a pre-requisite
of DPA investment.
 Investment first should be made for the welfare of
the society.
 It is pressure relieving investment or development
via excess of SOC.
ANJALI SINGH

 This process of development is called development
via shortage of SOC.
 First investment is made in the DPA.
 Shortage of SOC will raise the cost of production
and the price also.
 There will be pressure on the Government to put
SOC in place.
 Due to internal pressure and incentive the rate of
economic growth tends to be faster.
ANJALI SINGH

EXPLANATION
GRAPH
 45 degree line shows ideal
balanced growth of DPA and
SOC.
 AA, BB, CC are isoquant
curves for DPA and SOC that
shows there various
combinations that gives
same GNP at any pt of time.
 Higher curve, higher GNP
 D, G, K optimal points.
ANJALI SINGH

 Here, prof. Hirschman makes
two Assumptions:
a) SOCs and DPAs cannot
increase at the same time.
b) Investment should be such
that it maximizes induced
decision making.
 Expanding SOC,
development path DEGHK.
 When investment in SOC
increases from D to E,
investment in DPA increases
from D to F until the
balance is restored at G,
which is on higher isoquant. ANJALI SINGH

 If the case II is selected, the
development path will be
DFGJK.
When DPA investment
increases from D to F, SOC
increases from D to E until
eqm. is restored at G, which
is on a higher isoquant, BB.
Whole economy will be on a
higher level of output, which
would encourage more
investment in DPAs.
ANJALI SINGH

Theory of unbalanced growth

More Related Content

What's hot (20)

Similar to Theory of unbalanced growth (20)

Recently uploaded (20)

Theory of unbalanced growth