Scribd Logo
Upload

Welcome to Scribd!

  • 385 views

    Big Push Theory

    Uploaded by

    cooljsean
    The document summarizes Paul Rosenstein-Rodan's "Big Push Theory" of economic development. The theory argues that underdeveloped economies require large-scale, coordinated investments across multiple industries to overcome "indivisibilities" in production, demand, and savings. This would allow an economy to escape a low-level equilibrium trap and experience high growth. Rosenstein-Rodan proposed that countries with surplus agricultural labor in Eastern and Southeastern Europe undertake massive industrialization programs facilitated by international investment.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd

    Big Push Theory

    Uploaded by

    cooljsean
    385 views21 pages
    The document summarizes Paul Rosenstein-Rodan's "Big Push Theory" of economic development. The theory argues that underdeveloped economies require large-scale, coordinated investments across multiple industries to overcome "indivisibilities" in production, demand, and savings. This would allow an economy to escape a low-level equilibrium trap and experience high growth. Rosenstein-Rodan proposed that countries with surplus agricultural labor in Eastern and Southeastern Europe undertake massive industrialization programs facilitated by international investment.

    Original Description:

    big push theory

    Copyright

    © Attribution Non-Commercial (BY-NC)

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The document summarizes Paul Rosenstein-Rodan's "Big Push Theory" of economic development. The theory argues that underdeveloped economies require large-scale, coordinated investments across multiple industries to overcome "indivisibilities" in production, demand, and savings. This would allow an economy to escape a low-level equilibrium trap and experience high growth. Rosenstein-Rodan proposed that countries with surplus agricultural labor in Eastern and Southeastern Europe undertake massive industrialization programs facilitated by international investment.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    385 views21 pages

    Big Push Theory

    Uploaded by

    cooljsean
    The document summarizes Paul Rosenstein-Rodan's "Big Push Theory" of economic development. The theory argues that underdeveloped economies require large-scale, coordinated investments across multiple industries to overcome "indivisibilities" in production, demand, and savings. This would allow an economy to escape a low-level equilibrium trap and experience high growth. Rosenstein-Rodan proposed that countries with surplus agricultural labor in Eastern and Southeastern Europe undertake massive industrialization programs facilitated by international investment.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 21

    Big Push Theory of Economic Development

    BITS Pilani, K K Birla Goa Campus

    Big Push Theory of Development


    Paul Narcyz Rosenstein-Rodan (19021985) Austrian economist of Polish- Jewish origin. Was trained in the Austrian Tradition under Hans Mayer in Vienna. Rosenstein-Rodan emigrated to Britain in 1930, and taught at University College of London & at LSE until 1947. He then moved to the World Bank, before moving on to MIT, where he was a professor from 1953 1968.
    Paul Rosenstein Rodan
    BITS Pilani, K K Birla Goa Campus

    The Austrian School of Economics is a school of Economic Thought which advocates a methodological individualistic approach to Economics called Praxeology. The theory that Money is Non-neutral & Interest rates and profits are determined by the interaction of diminishing Marginal Utility with diminishing Marginal Productivity of time and time preferences. The capital structure of economies consists of heterogeneous goods that have multi specific uses which must be aligned (see Austrian Business Cycle Theory ABCT )and emphasizes the organizing power of the price mechanism.
    BITS Pilani, K K Birla Goa Campus

    Back Ground

    Author of "Problems of Industrialisation of Eastern and South-Eastern Europe( article-1943) This servers as the origin of the Big Push Model theory
    Source: The Economic Journal, Vol. 53, No. 210/211 (Jun. - Sep., 1943), pp. 202-211

    Here he argued for planned large-scale investment programs in industrialization in countries with a large surplus workforce in agriculture, in order to take advantage of network effects.

    BITS Pilani, K K Birla Goa Campus

    Proposes large Scale Industrialisation of E./ S Europe which were depressed economies. This shall drive more equal/higher distribution of income in these economies than western Europe.(Comparative Growth) Assumes that these economies (E/S Europe) have Agrarian Excess Population Out of 100 110 Million of total population, about 25%(20 25 million) are either partially or totally unemployed (disguised unemployment). Though unemployment is very much there in rich western Europe, in E./S Europe, it is considerably higher.
    BITS Pilani, K K Birla Goa Campus

    BITS Pilani, K K Birla Goa Campus

    If international division of labour principle are to be applied, then, Labour must either be transported towards capital (emigration) OR Capital must be transported towards labour (Industrialisation) Emigration involves transportation cost in capital movement of labour. Even if it is negligible, emigration has much larger social costs like resettlement etc. Hence, large scale emigration is not feasible. Alternative best option without incurring social cost is large scale industrialization.
    BITS Pilani, K K Birla Goa Campus

    In order to reach an optimum size of industrial enterprises, the area of industrialization must be sufficiently large. Towards possibility of lowering the marginal risk of investment, it is imperative to look at an economic unit comprising the whole area between Germany, Russia and Italy. Though the geographic area of this unit seems large, the total GNI is only f2000 million which is 40% of the GNI of Great Britain. Two fundamentally different ways are available for this BITS Pilani, K K Birla Goa Campus

    Eastern & S. Eastern Europe should industrialize on its own on the Russian Model minus Communism i.e. self sufficiency without international investment. That would imply construction of all stages of industry with the final result of a national economy built like a vertical industrial scale. Disadvantages of Russian Model In the absence international capital, It can only proceed slowly. Since, internal capital shall be employed/consumed for this model, it will eat up standard of living which is already at subsistence level.
    BITS Pilani, K K Birla Goa Campus

    It will therefore involve unnecessary sacrifice which is not needed. Since the region has natural resources, it will initially show up in productivity. However, since it will employ low level labour productivity due to initial years of industrialisation, world out shall be low. World there fore shall be poorer in material goods.
    Therefore, the alternative mode of industrialization would more fit E. SE. Europe into world economy which would preserve the advantages of an international division of labour, and would therefore, in the end, produce more wealth for everybody.
    BITS Pilani, K K Birla Goa Campus

    Alternative Model Assumptions / Preconditions Large Scale Industrialization Utilization of the advantages of International Division of Labour Employment of agrarian surplus labour Substantial International Investment or Capital lending i.e. Capital Mobility Proposes State intervention to regulate/mitigate investment risks Necessary institutional frame work needed.
    BITS Pilani, K K Birla Goa Campus

    Big Push Model for Underdeveloped Countries


    Underdeveloped Economies require large amounts of investments to embark on economic development A piece meal approach shall not impact as much as needed. Rather, small investments shall cause wastage of resources Hence, a minimum level of resources must be devoted to achieve desired success. Gives the example of air craft needing a critical minimum ground speed to be airborne. - Hence, to escape the low level equilibrium "trap, economies of scale and scope must have to be achieved.
    BITS Pilani, K K Birla Goa Campus

    The entire industrialization which is intended to be created should be treated and planned as a massive entity. Argues that the social marginal product of an investment is always different from its private marginal product. So, when a group of industries are planned together according to their social marginal products, the rate of growth of the economy is greater than it would have otherwise been

    BITS Pilani, K K Birla Goa Campus

    The three Indivisibilities


    According to Rosenstein - Rodan, there exist three indivisibilities in underdeveloped countries. These indivisibilities justify the need for a big push. The externalities are as followsIndivisibility in Production Function Indivisibility of Demand Indivisibility in the supply of Savings

    BITS Pilani, K K Birla Goa Campus

    Indivisibility in Production FunctionInputs/Processes/Outputs


    Indivisibility in Production Function involves preceding investments in many infrastructure area to host /sustain large scale industrialization . Example - investments in road / electricity etc. which is nearly 30 40% of lumpy investment which has to be invested in advance of large scale industrialisation.

    BITS Pilani, K K Birla Goa Campus

    Indivisibility of Demand Underdeveloped countries are characterized with low per capita income and the corresponding lack of surplus for expenditure. Market creation Needed. Shoe Industry Example. Industrialization can not happen in isolation. Has to happen in all sectors in a big way

    BITS Pilani, K K Birla Goa Campus

    Indivisibility in the supply of Savings High level investment needed for large scale industrialization International investments(Aid) may not necessarily flow all the time. Hence domestic saving mechanism / instrument / framework needed i.e. State intervention.

    BITS Pilani, K K Birla Goa Campus

    Single Sector Industrialization Model

    BITS Pilani, K K Birla Goa Campus

    Real Big Push in Work

    BITS Pilani, K K Birla Goa Campus

    Criticism
    Difficulties in Execution & Implementation Problems in Mixed Economies Ignores Agriculture Sector Shortage of Resources in underdeveloped countries Dependence on Indivisibilities Historical inaccuracy Long gestation Period Neglect of Method of Production

    BITS Pilani, K K Birla Goa Campus

    BITS Pilani, K K Birla Goa Campus

    You might also like