Backward and forward linkages
Also called: Linkage effects · Topic: Economic Growth Theories and Business Cycles · NCERT: Beyond NCERT
Meaning
Linkages show how one industry connects to others. Backward linkages are the demand an industry creates for its inputs. Forward linkages arise when its output is used as an input by other industries. Albert Hirschman (1958) argued that poor countries should invest first in sectors with strong linkages both ways. Their growth then pulls other industries along.
Example
A new steel plant creates backward linkages by demanding iron ore and coal. It creates forward linkages by supplying steel to the auto and construction industries. Power has strong linkages both ways too, which makes steel and power ideal "key sectors".
Don't confuse with
- Multiplier effect: the multiplier works through rounds of spending that raise total income. Linkages work through input-output ties between particular industries.
Related concepts
- Big push theory
- Balanced growth theory
- Unbalanced growth theory
- Balanced versus unbalanced growth
- Low-level equilibrium trap
- Rostow's stages of economic growth
- Growth pole theory
- Cumulative causation