484: Unbalanced Growth Theory by A. O. Hirschman

This video explains the #unbalanced #growth #theory pioneered by A. #Hirschman.

[@adeelkhan-jj5kn]

very well explained sir. Hirschman's theory also emphasizes the role of "linkages" between different sectors or regions in driving economic development. Adeel Bahadur

[@sayyedameerarkhisro1464]

By looking at the theory, does this mean that the unbalanced trends in the economic sectors of Pakistan is a sign of a healthy or rapidly expanding economy?

[@shoaibrazzaq5001]

Like other video lectures, it is also one of the important lectures. It adds knowledge to the learners of economics.

[@HKofficial15]

Keep watching

[@dr.shakeelahmed5990]

According to Hirschman, “Development is a chain of disequilibria that must be kept alive rather than eliminate the disequilibrium of which profits and losses are symptoms in a competitive economy. If economy is to keep moving ahead, the task of development policy is to maintain, tension, disproportions and disequilibria.” This theory revolves around one key question i.e. (Why does economic development proceed cyclically rather than evenly?). Unbalancing the Economy: Development, according to Hirschman, can take place only by unbalancing the economy. This is possible by investing either in social overhead capital (SOC) or indirectly productive activities (DPA). Social overhead capital creates external economies whereas directly productive activities appropriate them. (i) Excess of investment in Social Overhead Capital: Social over-head capital is concerned with those series without which primary, secondary and tertiary services cannot function. In SOC we include investment on education, public health, irrigation, water drainage, electricity etc. Investment in SOC favorably affect private investment in directly productive activities (DPA). Investment in SOC is called autonomous investment which is made with the motive of private profit. Investment in SOC provide, for instance, cheap electricity, which would develop cottage and small-scale industries. Similarly, irrigation facilities lead to development of agriculture. As imbalance is created in SOC, it will lead to investment in DPA. (ii) Excess of Investment in Directly Productive Activities: Directly productive activities include those investments which lead to direct increase in the supply of goods and services. Investment in DPA means investment in private sector which is done with a view to maximize profit. In those projects, investment is made first where high profits are expected. In this way, DPA are always induced by profits. Priorities: Excess SOC or Excess DPA: (a) Unbalancing the economy with SOC: Imbalance can be created both by SOC and DPA. But the question before us is that in which direction the investment should be made first to achieve continuous and sustained economic growth. The answer is quite simple. The government should invest more in order to reap these economies, the private investors would make investment in order to enjoy profits. This would raise the production of goods and services. Thus, investment in SOC would bring automatically investment in DPA. (b) Unbalancing the economy with DPA: In case investment is made first in DPA, the private investors would be facing a lot of problems in the absence of SOC. If a particular industry is setup in a particular region, that industry will not expand if SOC facilities are not available. In order to have SOC facilities, the industry has to put political pressure. That is really a tough job. Thus, excess DPA path is full of strains or pressure- creating whereas excess SOC path is very smooth or pressure relieving. Main Features of Unbalanced Growth Theory The theory emerged from recognizing the scarcity of resources in developing economies. It emphasizes: • Prioritization: Limited resources necessitate focusing on a few key sectors (e.g., infrastructure, manufacturing) with high growth potential and strong linkages to other industries. • Linkage Effects: Investments in leading sectors create demand for goods and services from other sectors, stimulating their growth (backward and forward linkages). • Disequilibrium: Unbalanced growth is not a permanent state but a catalyst for further development. Success in leading sectors creates profits that can be reinvested in a broader range of industries over time. Application in Developing Countries: The Case of Pakistan Pakistan, like many developing economies, grapples with limited resources and a need to diversify its economic base. Unbalanced Growth Theory offers a strategic approach. Targeted investments in infrastructure development (energy, transportation) or specific industries with high export potential (textiles, IT) can create a ripple effect. This strategy complements policies fostering entrepreneurship and innovation within the chosen sectors. Critique of the Unbalanced Growth Theory While offering a pragmatic approach, the theory has limitations: • Sector Selection: Choosing the right leading sectors is crucial but challenging. Mistakes can lead to wasted resources and uneven development. • Neglect of Agriculture: Overemphasis on industry can neglect the critical role of agriculture in developing countries, particularly for food security and rural employment. • Regional Imbalances: Focusing on specific sectors or regions can exacerbate existing regional inequalities. Strategies are needed to ensure benefits are distributed more broadly. Conclusion The Unbalanced Growth Theory offers a development strategy designed to resource constraints faced by developing countries like Pakistan. However, a new approach is crucial. Sector selection should be based on a careful analysis of linkages and potential for spillover effects. Policies promoting technology transfer, skills development, and infrastructure access across regions can mitigate potential inequalities. Ultimately, Unbalanced Growth is a steppingstone, requiring long-term strategies for balanced and inclusive development.

[@HKofficial15]

Wonderfully stated. Well done Dr. Shakeel Ahmad Khan