The concept of balanced growth is subject to various interpretations by various authors. It was Fredrick List who for the first time put forward the theory of. Definition of balanced growth: Balanced growth refers to a specific type of economic growth that is sustainable in the long term. It is sustainable. Balanced growth has at least two different meanings in economics. In This is partly motivated by theoretical convenience, but also by.


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If growth is focused on the use of non-renewable resources, then it became less sustainable in the long-term. A balance between different sectors e. An economy that relies on the primary sector mining, agriculture may be at greater balanced growth theory of fluctuations in the prices and output of primary products.

Also, an oil-based economy may deter investment in manufacturing which gives more balanced growth in the long-term. Under these circumstances, only a bundle of complementary investments realized at the same time balanced growth theory the chance of creating mutual demand.

1.2.1 Theory of Balanced Growth

The theory refers to Balanced growth theory theorem and requests investments balanced growth theory such sectors which have a high relation between supply, purchasing power, and demand as in consumer goods industry, food production, etc.

The concept of balanced growth from the demand side is that several industries should be developed simultaneously so that all can be the customers mutually and the products of all can be sold.

In this regard Rosenstein Rodan has given an example. According to him, if a shore make industry is set up all people linked with it will get income.

Theory of Balanced Growth

But they will not spend all of their income only on buying shoes. They will buy goods manufactured balanced growth theory other industries. Similarly if only one sided development is made it will not succeed. Contrary to it, if several industries are developed simultaneously and harmoniously, this difficulty can be removed.

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  • Ragnar Nurkse's balanced growth theory
  • Balanced Growth Theory (With Diagram)

Sectoral balance means economic development of all the sectors in an economy. People would try to imitate Western consumption habits and thus a balance of payments crisis may develop, along with economic inequality within the population.

Another reason exports cannot be promoted is because in all likelihood, an underdeveloped country may only be skilled enough to promote the export of balanced growth theory goods, balanced growth theory agricultural goods.

For Nurkse, then, exports as a means of economic development are completely ruled out. Nurkse believed that the subject of who should promote development does not concern economists. It is an administrative problem.

Balanced Growth | Economics Help

Further, the gestation period of such lumpy investments is usually long and private sector entrepreneurs do not normally undertake such high risks. His main critic balanced growth theory Albert O.


Hirschmanthe pioneer of the strategy of unbalanced growth. Singer also criticised certain aspects of the theory. Hirschman stressed the fact that underdeveloped economies are called underdeveloped because they face a lack of resources, maybe not natural resources, but resources such as skilled labour and technology.

Hirschman also stated that during conditions of slack activity in developed balanced growth theory, the stock of resources, machines and entrepreneurs are merely unemployed, and are present as idle capacity. balanced growth theory

So in this situation, simultaneous investment in a large number of sectors is a well-suited policy. The various economic agents are temporarily unemployed and balanced growth theory the inducement to invest starts operating, the slump will be overcome.

Balanced Growth Theory (With Diagram)

However, for an underdeveloped economy, where such resources are absent, balanced growth theory principle doesn't fit. However, Keynes stated that Say's Law is not operational in any country because people do not spend their entire income - a fraction of balanced growth theory is saved for future consumption.

Thus if the state pumps in large investments into the car industry, for example, it will naturally lead to a rise in the demand for petrol.

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