IRSHAD CV has been a student in Economics. Now he is doing Masters in Economics. He completed B.A. Economics from the University of Calicut.
Nowadays, growth and development becomes one of the crucial aims of any economy. No doubt, every economy or countries of the world started their journey of progress and prosperity from nothingness. Now, basically the entire economies of the world can be classified under three heads like underdeveloped economies, developing economies and developed economies. Underdeveloped economies are shows its backwardness and failure of proper utilization of resources. In developmental economics, there are many concepts like vicious circles of poverty, unemployment, rate of capital formation, savings, market size etc. Based on these concepts, economists developed different strategies of economics of growth and development.
Professor Rosenstein is regarded as the forerunner of the big push theory. Later the same theory was also popularized by economists like Rodan and Libenstein. Here this hub is aimed to provide a very brief note on big push theory.
Big Push Theory
Under developed economies are generally characterized with many poor social and economical indices. Over taking of the under developed characteristics is one of the great challenges and it is a long term task. Basically under developed economies are running under the trap of vicious circles of poverty. Which means that the economy suffering low employment or mass unemployment. Therefore people will earn lower income. So saving and consumption will be lower. This will lead to small market size and slower rate of capital formation. When the capital formation is lower, there will no more investment, production, employment, income etc. This kind of trap exists in under developed economies.
The biggest task of an under developed economies is to break the trap of vicious circles of poverty. Then only the economy can grow. The big push theory is states that, under developed economies are in urgent of heavy investments in its different sectors. This may push the economy in to a higher developed stage from under developed conditions. The theory also states that, low rate of investment in a single industry will not create any impacts in the economy. So it will be wastage. Because low rate of investment in a single industry cannot influence the economy as a whole and cannot able to break the trap of vicious circles of poverty, unemployment, low productivity, low income etc.
To explain the big push theory, Professor R. Roden has suggested three indivisibilities namely,
i) Indivisibility of production function
ii) Indivisibility of demand, and
iii) Indivisibility of supply of savings.
Each of this indivisibility is explained separately given below.
i) Indivisibility of Production Function
Indivisibility of production function refers to the improvements in the various production aspects of an under developed economies. It consists of inputs for production, factors of production, output etc. Generally, under developed economies are functioning with poor productivity, lower income, lower employment, poverty etc. This is basically because of the low capital-output ratio in the under developed economies. In advanced countries, the capital output ratio will be lower since the availability of better technologies.
To improve the productivity of the under developed countries, government must invest in social over head capitals like canals, roads, bridges, rail, power etc. This kind of investment requires huge public expenditure and the result is based on long term period. Investments in the basic infrastructure will directly generates employment opportunities and indirectly widen the market size by increasing the income and aggregate demand of households. Once people get employment, there will be an increasing trend in both consumption and savings. Which may lead the economy to produce more and by optimum utilization of the resources.
ii) Indivisibility of Demand
As mentioned above, market size of under developed economies is very small. It means that, lower demand, lower production, low rate of capital formation and lower income. So there required wide changes in the economy to achieve growth and development. The ultimate solution for the deficiency in demand is to conduct huge investment in every sector of the economy. It is not better to invest in a particular industry. Because small rate of investment in a single industry or few industries of under developed countries will be wastage. Generally, higher investment will provide maximum employment, income, demand, investment and so on. In this way the economy can achieve growth and development.
iii) Indivisibility in the Supply of Savings
Supply of sufficient amount of savings is one of the most important factors of economic growth and development. Because, a higher rate of savings denotes that, people are earning higher income. In other sense, savings is higher because of higher employment rate. In under developed countries, supply of savings will be lower since people lack employment and earns lower income. This is the basic reason for the lower capital formation, investment and small market size. In fact, under developed economies can grow more only when it can able to generate saving habits in the society. Therefore, the solution is that, government must invest on heavy projects, which will automatically generate employment and income. When people began to get more and more income, there will be also an increase in the rate of savings and investment. This will ensure higher capital formation. Further, the economy can enjoy the fruits of economic growth and development only when its marginal rate of savings exceeds average rate of savings.
The big push strategy is one of the most important strategies of economic growth and development. It put some methods before the under developed economies to improve and empower the economy from its pathetic conditions. The theory is emphasis on the role of investment in an economy. It also mentioned that, there should be equalization in investment in the every sector of the economy.
p@s on September 18, 2017: