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Q – 5. Explain the theory of unbalanced growth.

Do you agree that unbalanced
growth is an appropriate strategy for economic development in underdeveloped
countries?
Answer --- Unbalanced growth theory---- the leading of the unbalanced growth theory
is fro. Albert o. Hirschman. Some other economists like Hans Singer, Kindle Berger, and Paul Streeten
etc. also given their views in favor of the unbalanced growth theory. This theory mostly focus on the
need for investment in any leading sector of the economy instead of all the sectors simultaneously and
other sector automatically develops.
Albert O. Hirschman said that the unequal development of different sector generates good condition
for rapid development then create imbalance between one sector to another sector .He said that in
under developing countries have the lack of availability of resources then these countries use its
resource efficiently. He said that first to decide to some key sector such as electrical power. He
described the unbalanced growth theory two types – one external economics – in external economics,
according to Hirschman unbalance growth is generates externalities. He also given a example if the
growth of industry Aryan help to improve the growth of other industry Devesh and Aditya and so on.
Then the growth of industry of Aditya and Devils will take the lead to the growth of industry audit and
Priya and so on. Second, complementaries- complementaries is a situation where the production of one
good increased then maybe generate the demand of good increased and also may reduce the marginal
cost of these industries. The example of complementaries is that two industries A and B When the
demand of An product’s increase then the production of A industries also increase. Then the increased
production put pressure on the industries for increasing supply. If B is private produced good then this
pressure will lead to imports or larger production of industry B.
Classification of investment – Hirschman said that if we want to imbalance between one sectors
to another sector then do investment. Hirschman divided the investment into two parts first Social
overhead Capital (SOC) and Direct Productive Activities(DPA).this type of investment done by the public
sector which is the service provide.in social overhead capital (SOC) investments on education, road
,public health, communications, transportation and traditional public service like light, water ,power
,irrigation and drainage system, etc. The investment on these project create more economies.in this
investment public agencies (government) play very important role. Second investment is Direct
Productive Activities. This type of investment done by the private sector. These type of investment are
done for only profit. These are those activities which are a consequence of some investment, add to the
flow of final goods. Hirschman give opportunity to SOC investment because it focus on social welfare,
quality and distribution of goods and services. He also said that we cannot take both SOC and DPA
because developing countries have a lack of resources then we should concentrate only one another
one should be automatically stimulated.
Hirschman suggested that we growth the economy two types. First the unbalancing the economy
through SOC. A large investment in SOC will encourage private investment later In DPA. Unless SOC
investments provide cheap or improved service, private investments in DPA will not encourage ,so the
SOC views to economic development is to unbalance the economy so that would stimulate investment
in DPA. Example, the availability of cheap electricity is encourage the growth of small scale of industries,
the development of irrigation work is stimulating the growth of agricultural works. Second, a
government directly or indirectly invests in DPA instead invests in SOC. the demand for public facilities
like irrigation , roads , transport , communication and other traditional public service increase then
pressing for greater investment in these activities, so economy also grows.
Forward and backward linkages –
Backward linkage – the input which they use for production, produce by another industry. This
input helps to increase demand for this industry. Which material we use for production
Example --- steel industry, in the backward linkage include raw materials such as coal mining and iron
ore mining constitute in the steel industry.
Forward linkage --- one industry produce the raw materials for another industry .Those product this
industry makes whose product used by other industry in input.
Example – steel industry, in the forward linkage supply output in steel industry.
Backward and forward linkage very important for which country using the unbalanced growth model.
Hirschman said that we need investment in key sectors .Key sector means highest backward and
forward linkage called key sector. we focus only specific sector (key sector) like railway and transport
service ,iron and coal because a country may have not the resource that put investment in all sectors .If
our investment in these key sectors then we get a good growth rate. All sectors related to each other
than if we developed one sector then another sector also developed.

I agree that unbalanced growth is an appropriate strategy for economic development in
underdevelopment countries because --
1. A country cannot focus on all sector for growth because he have lack of resources ,so its focus
only some key sector
2. Unbalanced growth is a short period strategy for growth, not a long period strategy.
3. A countries achieve good growth rate in a period of time.
4. Unbalanced growth need not lot of investment. It’s want much less investment because its focus
on key sector not all sector.