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    Big Push Model

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    Swatilekha Bhakat
    The big push model argues that industrialization requires large, coordinated investments to overcome scale economies and externalities. It proposes that incremental investments will be wasted and a massive, planned push is needed to achieve self-sustaining growth. However, critics argue that the model is difficult to implement in practice due to coordination challenges and constraints like lack of absorptive capacity. It also neglects important factors like the agricultural sector and social reforms.

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    Big Push Model

    Uploaded by

    Swatilekha Bhakat
    324 views1 page
    The big push model argues that industrialization requires large, coordinated investments to overcome scale economies and externalities. It proposes that incremental investments will be wasted and a massive, planned push is needed to achieve self-sustaining growth. However, critics argue that the model is difficult to implement in practice due to coordination challenges and constraints like lack of absorptive capacity. It also neglects important factors like the agricultural sector and social reforms.

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    The big push model argues that industrialization requires large, coordinated investments to overcome scale economies and externalities. It proposes that incremental investments will be wasted and a massive, planned push is needed to achieve self-sustaining growth. However, critics argue that the model is difficult to implement in practice due to coordination challenges and constraints like lack of absorptive capacity. It also neglects important factors like the agricultural sector and social reforms.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    324 views1 page

    Big Push Model

    Uploaded by

    Swatilekha Bhakat
    The big push model argues that industrialization requires large, coordinated investments to overcome scale economies and externalities. It proposes that incremental investments will be wasted and a massive, planned push is needed to achieve self-sustaining growth. However, critics argue that the model is difficult to implement in practice due to coordination challenges and constraints like lack of absorptive capacity. It also neglects important factors like the agricultural sector and social reforms.

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    Attribution Non-Commercial (BY-NC)
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    Big push model

    The big push model is a concept in development economics or welfare economics that emphasizes the fact that a firm's decision whether to industrialize or not depends on its expectation of what other firms will do. It assumes economies of scale and oligopolistic market structure and explains when industrialization would happen. The originator of this theory was Paul Rosenstein-Rodan in 1943. Further contributions were made later on by Murphy, Shleifer and Robert W. Vishny in 1989. Analysis of this economic model usually involves using game theory. The theory of the model emphasizes that underdeveloped countries require large amounts of investments to embark on the path of economic development from their present state of backwardness. This theory proposes that a 'bit by bit' investment programme will not impact the process of growth as much as is required for developing countries. In fact, injections of small quantities of investments will merely lead to a wastage of resources. Paul Rosenstein-Rodan, approvingly quotes a Massachusetts Institute of Technology study in this regard, "There is a minimum level of resources that must be devoted to... a development programme if it is to have any chance of success. Launching a country into self-sustaining growth is a little [1] like getting an airplane off the ground. There is a critical ground speed which must be passed before the craft can become airborne...." Rosenstein-Rodan argued that the entire industry which is intended to be created should be treated and planned as a massive entity (a firm ortrust). He supports this argument by stating that the social marginal product of an investment is always [2] different from its private marginal product, so when a group of industries are planned together according to their social marginal products, the rate of growth of the economy is greater than it would have otherwise been. According to Rosenstein-Rodan, there exist three indivisibilities in underdeveloped countries. These indivisibilities are responsible for external economies and thus justify the need for a big push. The externalities are as follows-

    1. 2. 3.

    Indivisibility in production function Indivisibility of demand Indivisibility in the supply of savings

    Criticisms
    The theory has been criticized by Hla Myint and Celso Furtado, among others, primarily on the grounds of the massive effort required to be taken by underdeveloped countries to move along the path of industrialization. Some of the major criticisms are as follows.

    Difficulties in execution and implementation: The execution of related projects during the course of industrialization may involve unexpected or unavoidable changes due to revisions of plans, delays and deviations from the planned process. Hla Myint notes that the various departments and agencies involved in the process of development need to coordinate closely and evaluate and revise plans continuously. This is a challenging task for the governments of developing countries.[4]

    Lack of absorptive capacity: The implementation of industrialization programmes may be constrained by ineffective disbursement,short-term bottlenecks, macroeconomicproblems and volatility, loss of competitiveness and weakening of institutions. Credit is often utilized at low rates or after long time lags. There is often a loss of competitiveness due to the Dutch disease effect.[8]

    Historical inaccuracy: When viewed in light of historical experience of countries over the last two centuries, no country displayed any evidence of development due to massiveindustrialization programmes. Stationary economies do not [9] develop simply by making large-scale investment in social overhead capital.

    Problems in mixed economies: In a mixed economy, where the private and public sectors co-exist, the environment for growt] may not be a conducive one. Unless there is acomplementarity between the sectors, there is bound to arise competition between them, with the government departments keeping their plans confidential out of fear ofspeculative activities by the private sector. The private sector's activities are simultaneously inhibited due to lack of information of government policies and the general economic situation[4]

    Neglect of methods of production: Rather than capital formation, it is productive techniques which determine the success of a country in economic development. The big push model ignores productive techniques in its support for capital formation and industrialisation.[9]

    Shortage of resources in underdeveloped countries: Eugenio Gudin criticizes the theory of the big push on the grounds that underdeveloped countries lack the capital required to provide the big push required for rapid development. If an underdeveloped nation had ample capital supply and scarce factors, it would not be classified as underdeveloped at all. Limited resource availability is the first impediment to such countries. Though this problem may be overcome by foreign aids, industrialization may not take off as expected if the aid flows are volatil.e[8]

    Ignores the agricultural sector: With its heavy emphasis on industry, the model finds no place for agriculture. This is a gaping flaw in the theory, as in most underdeveloped countries it is this sector which is large and has labor surplus. Investments in agriculture need to go hand-in-hand with those in industry so as to stimulate the industrial sector by providing a market for industrial goods. If neglected, it would be difficult to meet the food requirements of the nation in the short run and to significantly expand the size of the market in the long run.

    Inflationary pressures: It follows from the neglect of the agricultural sector that food shortages are likely to occur with industrialization. Though it would take time for investments in social overhead capital to yield returns, the demand would increase immediately, thus imposing inflationary pressures on the economy. Cost escalations may even cause projects to be postponed and the development process in general to slow down.[1]

    Dependence on indivisibilities: The emphasis of this theory on indivisibility of processes is too much, as investments need not necessarily be on such a large scale to be economic. Social reforms are ignored, which are vital if a country is to grow on the basis of its own resources and initiatives. Development is bound to intensify if social reform is a part of the industrialization process.[9]

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