The Big Push Theory has been presented by Rosenstein Rodan. The idea behind
this theory is this that a big push or a big and comprehensive investment
package can be helpful to bring economic development. In other words, a certain
minimum amount of resources must be devoted for developmental programs, if the
success of programs is required.
As some ground speed is required for
the aircraft to airborne. In the same way, certain critical amount of resources
be allocated for development activities. This theory is of the view that through
'Bit by Bit' allocation no economy can move on the path of economic development,
rather a specific amount of investment is considered something necessary for
economic development. Therefore, if so many mutually supporting industries which
depend upon each other are started the economies of scale will be reaped. Such
external economies which are attained through specific amount of investment will
become helpful for economic development.
Rosenstein Rodan has presented three types of indivisibilities and economies
of scale. They are as:
(1) Indivisibilities in Production
Function: When so many industries are
established the economies regarding factors of production, goods, and techniques
of production are accrued. Rosenstein Rodan gives more importance to economies
which arise due to the establishment of social overhead capital. The
infra-structure consists of means of transportation, communication and energy
resources. They all contribute to development indirectly. They last for a longer
period of time. The SOC can not be imported. To construct it a big amount of
capital is required. For some time, the excess capacity may grow in SOC, but
they are very much must. Accordingly, UDCs will have to spend 30% to 40% of
investment on SOC. The SOC is attached with the following indivisibilities:
(i) The SOC must be provided before Directly Productive Activities (DPA).
(ii) It is lumpy and it has a minimum durability.
(iii) It lasts for a longer period of time and it is irreversible.
These indivisibilities serve as big obstacle in the way of economic
development of a UDC.
(2) Indivisibilities of Demand: The
complementarily with respect to demand
requires that UDCs should establish such industries which could support each
other. To make investment in one project may be risky because in UDCs the demand
for goods and services is limited due to lower incomes. In other words, the
indivisibilities of demand require that at least a certain amount of investment
be made in so many industries which could mutually support each other. As a
result, the size of market will be extended in UDCs; or the problem of limited
market will come to an end in UDCs. It is shown with Fig.
Here D1 and MR1 are the average and marginal revenue curves of a firm when investment is made in this single firm. This firm sells OQ1 quantity and
charges OP1 price. Here it faces losses equal to P1cab.
But if investment is made in so many industries the market will be extended. In this way, the
demand will increase as shown by D4 and corresponding marginal revenue curve is MR4. Now the equilibrium takes place at E where OQ4 quantity is produced and OPb price
is charged. As a result, the industries are having profits
equal to P4RST.
It means that the greater investment in so many industries nay convert the
losses into profits.
(3) Indivisibility in Supply of Savings: The supply of savings also serves as
an indivisibility. A specific amount of investment can be made in the presence
of specific savings But in case of UDCs because of lower incomes the savings
remain low. Therefore, when incomes increase due to increase in investment the
MPS must be greater than APS.
In the presence of these indivisibilities and non-existence of external
economies only a Big Push can take the economy out of dole drums of poverty. It
means a specific amount of investment is necessary to remove the obstacles in
the way of economic development.
Rosenstein theory is better in the sense that it identified that market
imperfections are the big obstacles in the way of economic development.
Therefore, a big amount of investment will solve the problem of limited markets,
rather depending upon market mechanism, and such heavy amounts of investment will become helpful for economic
growth. Despite this merit, followings are the demerits of this theory.
(i) Negligible Economies in Export,
and Import Substitute
Sectors: The 'Big Push' infrastructure may be justified on the ground of external
economies. But, according to Viner, the export sector and .import-substitute
sectors are so backward in UDCs that they hardly give rise to economies.
(ii) Negligible Economies from Cost Reducing Investment: The goods which are concerned with public welfare hardly yield external
economies. Moreover, the investment which is aimed at reducing costs does not
(iii) Neglecting Investment in Agri. Sector: In this theory emphasis has been
laid upon making investment in infrastructure and industries. While it neglects
the investment to be made in agri. and its allied sectors. As the agri. sector
is the largest sector in UDCs and it will be a mistake to ignore it.
(iv) Inflationary Pressure: From where the funds will come in UDCs to spend
them on SOC. If the funds are raised through foreign loans and by printing new
notes they will create inflation in the economy.
(v) Administrative and Institutional Difficulties: This theory stresses upon
state investment to remove deficiency of capital. But in case of UDCs the
machinery is corrupt. There exist a lot of problems in state machinery. The
private and public sectors compete with each other, rather supporting each
other. Consequently, there will not be the balanced growth in the economy.
(vi) It is Not a Historical Fact: The Big Push theory is a recipe for the UDCs,
but it has not been derived on the basis of historical experience. As Prof.
Hagen says, "the Big Push theory lacks the historical evidences and facts".