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Theory of Unbalanced Growth: Prof. A.O. Hirschman

This document outlines Professor Hirschman's theory of unbalanced growth. The theory suggests selecting priority or strategic sectors to invest heavily in first. This is because underdeveloped countries cannot invest in all sectors simultaneously due to lack of resources. The best strategy for development is to intentionally create imbalances in the economy by focusing investment in certain sectors. This will spur development as efforts are made to correct the imbalances. Hirschman argues that development occurs through a chain of disequilibriums, which policy should aim to maintain rather than eliminate.

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724 views11 pages

Theory of Unbalanced Growth: Prof. A.O. Hirschman

This document outlines Professor Hirschman's theory of unbalanced growth. The theory suggests selecting priority or strategic sectors to invest heavily in first. This is because underdeveloped countries cannot invest in all sectors simultaneously due to lack of resources. The best strategy for development is to intentionally create imbalances in the economy by focusing investment in certain sectors. This will spur development as efforts are made to correct the imbalances. Hirschman argues that development occurs through a chain of disequilibriums, which policy should aim to maintain rather than eliminate.

Uploaded by

PhoulLit
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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THEORY OF

UNBALANCED
GROWTH
Prof. A.O. Hirschman

ANJALI SINGH

INTRODUCTION

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

INTRODUCTION

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

CLASSIFICATION OF SERIES OF
INVESTMENT

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

CLASSIFICATION OF SERIES OF
INVESTMENT

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

CASE-I : UNBALANCING THE


ECONOMY WITH SOC

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

CASE-II : UNBALANCING THE


ECONOMY WITH DPA

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

THE PATH TO DEVELOPMENT

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

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