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BALANCED GROWTH
STRATEGY
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Balanced Growth
This concept is subject to various interpretationsby various authors.
It was Ferderick List who put forward first time.
Rugnar Nurkse ,Arthur Lewis,,A Young andRoseintien Rodan advocated the balance growthstrategy
Thesynchronised application of capital to a widerange of different industries
- Nafziger (1990, p. 85)
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Balanced Growth
Balanced growth requires balance betweendifferent consumer goods & capital goodsindustries, balance between industry andagriculture,between domestic & exportsector
There should be simultaneous andharmonious development of different
sectors of the economy so that all sectorsgrow in unison
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Two Versions
1. A critical minimum effort is required toovercome indivisibilities in the productiveprocesses on both the demand and supply
side of the market, i.e. BigPush (Rosenstein-Rodan and Nurkse)
or
2. The path of development and the pattern ofinvestment must be balanced between thesectors of the economy to ensure its smooth
functioning.(Nurkse and Lewis)
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SectoralBalance
Balance inDemand
Side
Balance inSupply
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Balance in Supply Side
The supply side lays emphasis onsimultaneous development of allinterrelated sectors which lead to
development of intermediate goods,rawmaterials,power,agriculture,irrigation andtransport and all producing consumer
goods.
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The demand side
Complimentarity Of IndustriesThe demand side relates to the provision forlarger employment opportunities and increasingincome so that demand for goods and services may
rise on the part of the people.When investment is made in a number ofindustries at a time the generated income couldprovide demand for one anothers product and
further create investment.Demand side is related to supplementaryindustries
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Sectoral balance
A balanced development in all the sectorsbeing interdependent of various sectors in aneconomy
As agriculture & Industry are complementaryto each other expansion of industry willrequire expansion of agriculture and viceversa.
A balance between domestic trade and foreigntrade become essential
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Balance between agriculture and
Industry
An increase in industrial production will alsorequire an expansion in agricultural production
The growth of one sector creates externaleconomies for other sectors
For eg the growth of jute industry dependsupon the availability of raw jute
Agricultural improvements are possible through
industrial development as it provides a solidtechnical base for modern agriculture
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Balance between Investment in Human
Capital and Investment in material
OutputIn underdeveloped countries a balancebetween investment in human capital andmaterial capital is required.
Investment in human capital improves thequality of man power and rise in in realpercapita income
Investment on material and human capitalwill help to raise capital formation
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Balance between Domestic and Foreign
Trade
Domestic trade creates marketable surplusthat leads to the expansion of foreigntrade
Following steps are required Restriction must be imposed on import of
luxury goods
Govt should make consistent efforts to earnmore foreign exchange for the promotion ofexport and reduction in imports
Underdeveloped countries should re shape the
tariff policy in accordance to its requirements
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Views of Rosenstein-Rodan
Paul Rosenstein-Rodan
1902 - 1985
Rosenstein-Rodan was initially
concerned with the post wardevelopment of Eastern and SouthEastern Europe He argued that industrialisation
was the only way to alleviate the25% unemployment rate due toexcess agricultural workers However, he believed that suchinvestment would not occurwithout co-ordinationIf investment is not madesimultaneously in other sectors ofthe economy productivity of other
industries will not expand
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Views of Rosenstein-Rodan
Paul Rosenstein-Rodan
1902 - 1985
His main contention is that
SMP(Social marginal product) of aninvestment is different from itsPMP(Private Marginal Product).
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NURKSEs Views
Ragnar Nurkse1907 - 1959
Nurkse followed up on Rosenstein-Rodans thesis
He embraced BigPush theory, butargued that coordination could alsobe achieved by private agents, i.e.banks.
His contribution was to assert theimportance of achieving balancebetween different sectors of theeconomy
Balanced Growth is required tobreak the vicious circle of poverty.
Vicious circle of poverty can bebroken by enlarging the market size
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NURKSEs Views
Ragnar Nurkse1907 - 1959
The market can be enlarged bymonetary expansion by salesman
ship and advertisement &expanding social overheadsie.infrastructures
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A Balanced Economy
Nurkse was concerned with the path ofdevelopment and the pattern of investment
He argued that these should be of such a naturethat growth is balanced between different sectors
such that no bottlenecks or excess capacity arise
Integral to this proposition is the notion that theagricultural and industrial sectors must be balanced
=
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Benefits of balanced growth
Balanced regionalgrowth
Division of labour
Possibilities ofinnovations &Research
Better use ofnatural resources
Less dependenceon Foreigners
Stability in Prices
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Criticisms of balanced growth
Rise in Costs
WrongAssumptions
AdministrativeDifficulties
Danger of inflation Inadequacy of
resources
More suitable toadvanced countries
Deficiency ofcapital