Theory of Big Push: By Rosenstein Rodan; a Theory of Balanced Growth

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Theory of Big Push: By Rosenstein Rodan; A Theory of Balanced Growth (Economics)

Rationale Behind the Theory

  • Bit by bit approach – a mere wastage of resources

  • Small investment cannot break the vicious cycle

  • Based on the idea of external economies

  • External economies are unpaid benefits which go to third parties

  • External economies benefit all the firms in industry

  • For example, Shoe factory

Features of the Big Push Theory

Features of The Big Push Theory

Features of the Big Push Theory

Three Kinds of Indivisibilities and Economies

1. Indivisibilities in production function

Three Kinds of Indivisibilities and Economies

Three Kinds of Indivisibilities and Economies

Indivisibilities of Creating Socs

  • Indivisibility of time

  • Indivisibility of durability

  • Indivisibility of long gestation periods

  • Indivisibility of an irreducible industry mix of public utilities

2. Indivisibilities of demand

  • Complementarity of demand

  • Small market size in UDCs – expansion of market size

  • Indivisibilities of demand

    Indivisibilities of Demand

Example – shoe factory

3. Indivisibilities of supply of savings

  • Low level of savings in UDCs and LDCs

  • Huge investment will cause rise in incomes

  • To increase savings, MPS must be greater than APS

MCQs

Q.1. The theory of big push is based on which of the following ideas?

A. Internal economies of scale

B. Small amount of investment

C. External economies of scale

D. Unbalanced growth

Answer: C

Q.2. Which of the following is not one of the three indivisibilities in the big push theory?

A. Indivisibility of supply of savings

B. Indivisibility in investment function

C. Indivisibility in production function

D. Indivisibility of demand

Answer: B

Q.3. External economy refers to:

A. Gains or benefits that come from outside the country

B. Additional gains that arise within a firm

C. Huge initial investment

D. Unpaid benefits which arise from expansion and go to third parties

Answer: D

Q.4. In indivisibilities of supply of savings,

A. MPS must be greater than APS

B. MPS must be equal to APS

C. MPS must be smaller than APS

D. The value of MPS and APS must be equal to 1

Answer: A

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