Balanced Growth Theory | Theory of Balanced Growth

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The balanced growth theory was first of all put forward by Fredrick List. However, economists like Ragnar Nurkse, Arthur Lewis, etc. were supported the approach to accelerate the process of economic development.

According to the strategy of balanced growth to achieve the goal of economic development, simultaneous investment should be made in different sectors of the economy.

Hi friends, in today’s article we are going to know about the theory of balanced growth. So let’s discuss in details.

Balanced Growth Theory

The balanced growth theory implies the balanced development in various sector of the economy like agriculture sector, industrial sector, transportation sector, service sector etc.

Here, a balance is under taken between manufacturing goods industries, between agricultural and consumer goods as well as capital goods industries. Besides, there is also a balance between export & import.

According to P.A. Samuelson, Balanced growth implies growth in every kind of capital stock constant rates. According to W.A. Lewis, In development programmes all sectors of economy should grow simultaneously so as to keep a proper balanced between industry and agriculture and bet production for home consumption and production for exports the truth is that all sectors should be expanded simultaneously.

R.F. Harrod, ‘Balanced growth aims at equality between growth rate of income, growth rates of output and growth rate of natural resources. i.e.

Gy = Gy =Gy

Explanation of the theory of Balanced Growth

The balanced growth theory can be explained with the help of Ragnar Nurkse theory of various circle. Prof. Nurkse has given a proper explanation of the theory of balanced growth. He holds that the main obstacle to the development of the underdeveloped countries is the VCP.

The VCP shows that income in UDC is low, Low income leads to low savings. Low savings will naturally result in low investment, which will result is less production. Low production will generate low income.

Low income will create low demand for goods. In other words, it will result in smaller markets. Thus, there will be no inducement to invest. So in order to break the VCP in the UDCs, it is essential to have a balance between demand & supply.

Benefits of Balance growth

Arguments in favour of  balance growth (BG), The benefits of BG can be briefly stated below –

Balance Regional Development – This theory implies that all sectors should be developed simultaneously. In fact efficiency, self sufficiency & self reliance is the result of balanced growth doctrine. In a sense, balanced growth is the real salvation to the problem of underdeveloped countries.

Division of Labour – A ride extent of market will pave the way for more division of labour and specialisation which will raise the productivity and leads to improve the quality of product.

Specialisation – The BG strategy helps in enlarging the size of the market. The expansion of market leads to member of benefits. It leads to specification, the efficiency goes up due to expertise. As a result new innovations are encouraged.

Possibility of Innovations & Research – This theory encourages innovation and researches indifferent fields of the economy. The competition arises due to the simultaneous development of different industries.

Creation of social overhead Capital – BG is a tool for the creation of social overhead capital. When different industries develop simultaneously, investment is made in order social overhead works as of transportation, power dams, banking etc.

Wide Extent of Market – Generally market imperfections & VCP obstruct the path of economic development. This problem can be solved by adopting the principle of BG.

The simultaneous development of different sectors help in the production of variety of goods. Which in turn, would lead to the expansion of demand and enlargement of the market.

Better use of natural Resources – BG makes the possibility of better use of natural resources in a region. As it has been observed that there are abundant or under-utilised.

Criticism of Balanced Growth Theory

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Arguments in Against Balance growth –

After studying the advantages of BG, one should not conclude that the salvation of under developed countries lies in the growth. As a matter of fact the doctrine of BG has been strategy criticised by some economists.

(i) Administrative Difficulties – The principle of BG overlooks the inefficient administrative capacity of UDC’s. The administrative machinery of overloaded which causes maladjustment in the smooth functioning of the economy.

(ii) Rise in Costs – The foremost, drawback of the concept is that the establishment of number of industries will raise the real and money cost of production.

iii) Danger of Inflation – BG doctrine advocates simultaneous investment in a number of industries. As such when demand increases owing to huge investment outlays made in different sectors and corresponding supply facts to cope up with it, resulting in inflation.

(iv) More suitable to Advanced Countries – BG theory is more suitable to the well advanced countries as these countries possess sufficient resources, machines & entrepreneurs.

Thus, underdeveloped economies are not suffer for balanced development on account of scarcity of basic pre-requisite and infrastructures.

(v) Deficiency of Capital – In the path BG huge amount of capital investment is required. While UDC’s cannot afford such heavy capital due to low savings and market imperfection etc. Thus, the doctrine of BG become an exercise in futility.

(vi) Development from Zero Level – This theory depends upon, the development starts from a zero level. But in reality it is not so.. Each underdeveloped country starts from a point where some economic development has already taken place.

Thus, it is not essential to give equal importance to all the sectors. If all make equal investment in all the sectors, it will result into bug difference in the development of different sector.

Conclusion

Despite the above weakness it is an admitted fact that the theory of balanced growth has to play an important role in the economic development of UDC’s. The only thing required for the success of this strategy is the creation of proper climate.

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