The big push theory

This Presentation is about Prof. Paul N. Rosenstein Rodan's Big Push theory.

1. The Big Push Theory By Prof. Paul N. Rosenstein Rodan 11/1/2014 ANJALI SINGH

2. Introduction It is based on the principle of big push or by the way of big investment for development in an UDC. Investment below a certain level will be a mere wastage and will not enable the economy to break the vicious circle of poverty. 11/1/2014 ANJALI SINGH

3. Explanation Prof. R. Rodan has mentioned three kinds of indivisibilities which are considered foremost in getting the path of economic development : Indivisibility in production function Indivisibility in demand Indivisibility in Supply of Savings 11/1/2014 ANJALI SINGH

4. 1. Indivisibility in Production Function It refers to the indivisibilities of input, output, process of production etc. These indivisibilities lead to increasing returns ( i.e., increase in output income employment) and lowers capital output ratio. The most important instance of this indivisibility is Social Over head capital. 11/1/2014 ANJALI SINGH

5. Social Overhead Capital It includes the production of power, transport, communication and public utility services with heavy amount of investment on directly productive activities. Their installation requires a ‘sizeable initial lump’ of investment, but as time passes, better utilization brings down cost and makes it profitable. 11/1/2014 ANJALI SINGH

6. Indivisibilities of creating SOCs Indivisibility of time: SOC is irreversible in time as it has to be provided before setting up directly productive industries. Indivisibility of durability: SO lasts for long period, less capital not beneficial. Indivisibility of long gestation period: Investment of an irreducible industry mix of public utilities: SOs must be developed immediately. Isolated facilities will not be beneficial. 11/1/2014 ANJALI SINGH

7. 2. Indivisibility in Demand The central idea of Rodan in this regard is that UDCs have small sized markets due to low per capita income and low purchasing power of general mass of people. It can be taken care of by expanding the size of the market and development of the complementary industries together. Example of Shoe factory. 11/1/2014 ANJALI SINGH

8. Indivisibility in Supply of Savings Substantial investment in a no. of industries at one and the same time requires a very high level of savings, which is very difficult to achieve in an UDC. Solution to this is, when income is increased due to increase in investment mechanisms must be provided to raise the marginal rate of saving in comparison to average rate of savings. 11/1/2014 ANJALI SINGH

9. Criticisms High minimum quantum Investment is not explained, and also, the capacity of UDCs to invest is absent. There are no specific measures to overcome bottlenecks He doesn’t give importance to PPP Model. He doesn’t give much importance to technology. It fails to recognize that the amount of resources in UDCs is limited. 11/1/2014 ANJALI SINGH

10. Criticisms It is a program of comprehensive industrialization, agriculture gets no mention. It lays too much emphasis on the indivisibilities. There is a danger of inflation. This theory can not be adopted without active state participation guidance and control. But, in UDCs the Govt. administration in very much inefficient, inexperienced and lethargic to handle. 11/1/2014 ANJALI SINGH

11. Theory not supported by History As noted by Furtado , the theory is not confirmed by historical facts. Ex. BOLIVIA, where large investments were spent on social overheads yet the economy remained stationary and per capita income also remained low. 11/1/2014 ANJALI SINGH