04/14/2023 ANJALI SINGH

The Big Push TheoryBy Prof. Paul N. Rosenstein Rodan

04/14/2023 ANJALI SINGH

IntroductionIt is based on the principle of big

push or by the way of big investment for development in an UDC.

Investment below a certain level will be a mere wastage and will not enable the economy to break the vicious circle of poverty.

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Explanation

Prof. R. Rodan has mentioned three kinds of indivisibilities which are considered foremost in getting the path of economic development :

Indivisibility in production function

Indivisibility in demand

Indivisibility in Supply of Savings

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1. Indivisibility in Production Function

It refers to the indivisibilities of input, output, process of production etc.

These indivisibilities lead to increasing returns ( i.e., increase in output income employment) and lowers capital output ratio.

The most important instance of this indivisibility is Social Over head capital.

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Social Overhead CapitalIt includes the production of power,

transport, communication and public utility services with heavy amount of investment on directly productive activities.

Their installation requires a ‘sizeable initial lump’ of investment, but as time passes, better utilization brings down cost and makes it profitable.

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Indivisibilities of creating SOCs

Indivisibility of time: SOC is irreversible in time as it has to be provided before setting up directly productive industries.

Indivisibility of durability: SO lasts for long period, less capital not beneficial.

Indivisibility of long gestation period:Investment of an irreducible industry

mix of public utilities: SOs must be developed immediately. Isolated facilities will not be beneficial.

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2. Indivisibility in Demand

The central idea of Rodan in this regard is that UDCs have small sized markets due to low per capita income and low purchasing power of general mass of people.

It can be taken care of by expanding the size of the market and development of the complementary industries together.

Example of Shoe factory.

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Indivisibility in Supply of SavingsSubstantial investment in a no. of

industries at one and the same time requires a very high level of savings, which is very difficult to achieve in an UDC.

Solution to this is, when income is increased due to increase in investment mechanisms must be provided to raise the marginal rate of saving in comparison to average rate of savings.

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CriticismsHigh minimum quantum Investment

is not explained, and also, the capacity of UDCs to invest is absent.

There are no specific measures to overcome bottlenecks

He doesn’t give importance to PPP Model.

He doesn’t give much importance to technology.

It fails to recognize that the amount of resources in UDCs is limited.

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CriticismsIt is a program of comprehensive

industrialization, agriculture gets no mention.

It lays too much emphasis on the indivisibilities.

There is a danger of inflation.This theory can not be adopted

without active state participation guidance and control. But, in UDCs the Govt. administration in very much inefficient, inexperienced and lethargic to handle.

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Theory not supported by HistoryAs noted by Furtado, the theory

is not confirmed by historical facts.

Ex. BOLIVIA, where large investments were spent on social overheads yet the economy remained stationary and per capita income also remained low.