Unbalanced growth theory
Topic: Economic Growth Theories and Business Cycles · NCERT: Beyond NCERT
Meaning
Unbalanced growth theory was put forward by Albert Hirschman in 1958. He said a poor country does not have enough money to invest in every sector at the same time. It should instead put its money into a few key sectors that have strong linkages, meaning strong ties to other industries. The shortages and bottlenecks this creates then push people to invest in the other sectors. A backward linkage is the demand an industry creates for its inputs. A forward linkage is the supply of its output to other industries.
Example
Steel is a good target sector. It creates demand for iron ore and coal, which is a backward linkage. It also supplies autos and construction, which is a forward linkage. India's Mahalanobis strategy in the Second Plan (1956) gave priority to heavy industry. This was India's unbalanced-growth choice.
Don't confuse with
- Balanced growth theory (Nurkse, Rosenstein-Rodan): invests in many sectors at once so that each sector creates demand for the others. Its weakness is that it needs huge resources. Unbalanced growth invests in a few sectors, and its weakness is that bottlenecks may last.
Related concepts
- Big push theory
- Balanced 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