Balanced growth theory
Topic: Economic Growth Theories and Business Cycles · NCERT: Beyond NCERT
Meaning
Balanced growth theory says a poor economy should invest in many complementary industries at the same time. Each industry then creates demand for the others' products. Ragnar Nurkse (1953) linked it to the vicious circle of poverty: low income → low saving → low investment → low productivity → low income. In his words, "a country is poor because it is poor." Its main weakness is that it needs huge resources, which poor countries do not have.
Example
A single shoe factory in a poor district may fail because too few people can afford shoes. If a textile mill, a food-processing unit and a shoe factory open together, their workers buy one another's products, so all three find a market.
Don't confuse with
- Unbalanced growth (Hirschman, 1958): invest in a few key linkage sectors and let the resulting shortages induce investment elsewhere.
Related concepts
- Big push theory
- Unbalanced growth theory
- Balanced versus unbalanced growth
- Backward and forward linkages
- Low-level equilibrium trap
- Rostow's stages of economic growth
- Growth pole theory
- Cumulative causation