Economic Growth Theories: Nurske & Hirschman

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Questions and Answers

What is the primary goal during the 'take-off stage' of development?

Reducing net investment rates below 5 percent

Focusing solely on foreign investments

Establishing an isolated economic environment

Increasing net investment rates from 5 to 10 percent of national product (correct)

How should financial resources be accumulated during the developmental phase?

By reducing governmental spending

Through increased taxation on lower-income classes

Through higher saving rates internally (correct)

By borrowing from foreign banks

What key aspect does the 'Big-push' theory emphasize for achieving development?

Balanced growth across all sectors

Small incremental investments

High minimum investments to realize external economies (correct)

Independent projects for each economic sector

Why is income distribution significant during the growth phase?

It allows for capital use by productive classes and strata Signup and view all the answers

What limitation does the theory of stages of growth face?

It fails to explain why some societies advance while others do not Signup and view all the answers

What characterizes the 'traditional society' stage in the Theory of Stages of Growth?

More than 75 percent engaged in food production. Signup and view all the answers

Which stage in the Theory of Stages of Growth is marked by significant changes in the non-industrial sectors?

Transitional stage. Signup and view all the answers

During which stage of growth is there a sharp increase in the rate of investment in per capita output?

Take-off stage. Signup and view all the answers

What occurs during the 'drive to maturity' stage according to the Theory of Stages of Growth?

Broad application of modern technology occurs. Signup and view all the answers

What is a key feature of the 'stage of high mass consumption'?

Formal policies prioritizing private consumption. Signup and view all the answers

Which societal change is emphasized in the 'take-off stage'?

Decline of traditional societal structures. Signup and view all the answers

Which of the following is NOT a feature of the transitional stage?

Stagnation of economic progress. Signup and view all the answers

In the Theory of Stages of Growth, the main role of first investments is to overcome which limitation?

Entrepreneurial ability. Signup and view all the answers

What does the Theory of Balanced Growth primarily emphasize for overcoming underdevelopment?

Capital formation and investment Signup and view all the answers

According to the Theory of Balanced Growth, what is considered the main bottleneck in achieving development?

Shortage of capital Signup and view all the answers

What is a key assumption of Hirschman's Theory of Unbalanced Growth?

Institutional factors hinder entrepreneurial decision-making. Signup and view all the answers

What strategy does Hirschman suggest for addressing the issues of underdevelopment?

Maintaining existing imbalances to spur growth Signup and view all the answers

Which of the following sectors is recommended by the Theory of Balanced Growth for significant investment?

Consumer goods industry Signup and view all the answers

According to Hirschman, what could serve as a necessary mechanism for entrepreneurial decision-making?

Incentives and pressure from the market Signup and view all the answers

In the Theory of Balanced Growth, what is necessary for ensuring a balanced growth?

Investment planning by governments Signup and view all the answers

Which principle is aligned with Hirschman's approach to development?

Maintaining profit and loss imbalances is crucial. Signup and view all the answers

Study Notes

Theory of Balanced Growth (NURSKE)

This theory points to the narrow market and limited market opportunities as obstacles to development.
Complementary investments are crucial to create mutual demand and overcome the narrow market.
Investing in sectors with high supply, purchasing power, and demand relationships, such as consumer goods and food production, is emphasized.
Capital shortage is identified as the real bottleneck, requiring the mobilization of all potential capital sources.
Governmental investment planning is needed to ensure balanced growth.
Development involves market expansion and increased production, including agriculture, without considering structural hindrances.

Theory of Unbalanced Growth (HIRSCHMAN)

This theory contrasts with the balanced growth theory, suggesting that the bottleneck is not capital shortage, but a lack of entrepreneurial abilities.
Institutional factors hinder potential entrepreneurs: group considerations or individual gain at the expense of others.
A mechanism of incentive and pressure is needed to drive necessary decisions.
Instead of aiming for balanced growth, maintaining existing imbalances, with their associated opportunities for profit and loss, is advocated.
Investments should be concentrated in projects that generate additional investments through backward and forward linkages, minimizing entrepreneurial demands.

Theory of Stages of Growth (ROSTOW)

This theory explains long-term economic development by outlining five universal stages:
- Traditional Society: Over 75% of the population is engaged in food production, with political power concentrated in landowning or central authority figures.
- Transitional Stage: Preconditions for take-off are created through changes in non-industrial sectors, including raw material exports, emergence of businesspeople, and the spread of economic progress ideals.
- Take-off Stage: A significant rise in per capita output investment occurs. This stage involves an industrial revolution with substantial changes in production methods.
- Drive to Maturity Stage: Growth spreads from leading sectors to others, accompanied by broader technology application and societal adjustments.
- High Mass Consumption Stage: Attained after achieving a certain income level and prioritising increased private consumption in economic policies.
The crucial "take-off stage" necessitates a net investment increase (5-10% of national product), along with political, social, and institutional development for self-sustained growth.
Internal financial accumulation through higher saving rates and income distribution favouring productive capital users are emphasized.
While this theory is widely known, it provides limited explanation for development outcomes.

'Big-push' Theory (ROSENSTEIN-RODAN)

This theory focuses on the conditions for take-off emphasizing the need for a “big push” in investments.
Significant investments are required to reap the benefits of external economies, with large-scale complexes yielding greater social returns than costs.
Priority is given to infrastructure and industry, leading to government-led development planning and influence.
The aim is to transform traditional subsistence economies into modern market economies.
The theory primarily centres on capital formation and investment, offering solutions for overcoming underdevelopment while contributing little to explaining its causes.

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Description

Explore the contrasting theories of economic growth proposed by Nurske and Hirschman. The quiz examines the importance of balanced versus unbalanced growth, the role of market opportunities, and the significance of entrepreneurial abilities. Test your understanding of these foundational concepts in development economics.