Good Research Paper On The Balanced And Unbalanced Growth Models

Introduction

The balanced growth model focuses on prioritizing equality the economy. The capital mobilization and investment is equally distributed to all the sectors (JDSTH, 2011). The balanced model aims at creating simultaneous balanced growth of the various sectors in the economy. The balanced growth model was proposed by Roseitein Rodan and Ragnor Nurkse (JDSTH, 2011). The unbalanced growth model uses a different approach that focuses first on the strategic sectors. The other sectors develop later through the linkages effect. The unbalanced growth model is used mostly by the underdeveloped countries. The unbalanced growth model was proposed by Hirschman, Fleming, Singer, and Rostow (JDSTH, 2011).

The Balanced Growth Model

There are two approaches that are used in the balanced growth model. The first approach is known as the “Big Push”, and focuses on eliminating the inequalities in the supply and demand sides of the market. The second approach focuses on ensuring that the investment patterns and development paths are balanced in all the sectors.
The Big Push approach was influenced by Rodan. Rodan was very concerned with the development of South Eastern and Eastern Europe after the war. His arguments were for the industrialization of the region so as to reduce the rate of unemployment. The high rate of unemployment was influenced by the fact that there were too many agricultural workers compared to the agricultural jobs available (Bhopal, 2013). Radon was of the opinion that there was a high need for coordination to enable the success of such an investment.
The size of the market limits the incentive to invest. The early industries suffered from lack of demand for their products due to the lack of surplus production by the agricultural economy (Bhopal, 2013). The transfer of workers to manufacturing industries leads to the generation of demand for the manufactured products. Radon proposed that the workers need to be transferred to various industries so as to enable them to spend their earnings on different goods. The various industries would therefore complement each other. Coordination among industries is important so as to encourage the growth and development of all the industries.
The second approach which focused on balanced growth was proposed by Nurkse. The approach adopted the big push theory, but insisted on the achievement of coordination through the use of private agents such as banks (Bhopal, 2013). The focus was on the achievement of balance among all the sectors in the economy. The balance is to be achieved so that there are no cases of excess capacity or bottlenecks.

The Unbalanced Growth Model

Hirschman is of the opinion that the creation of imbalances in the economy is the best strategy (JDSTH, 2011). The lack of resources in underdeveloped countries calls for the efficient use of the scarce resources. Hirschman argues that priority should be given to sectors that are strategic. The unbalanced growth of the economy leads to external economies. The growth of one industry stimulates the growth of other industries. The growth of the products in a strategic industry may lead to the demand of complementary products that are produced by other industries. Hirschman argues that economic growth uses the path set by the imbalances in the economy (Bhopal, 2013). Imbalances lead to tensions, competitions, and incentives that stimulate economic growth.
Hirschman classifies investment into social overhead capital (SOC) and direct productive activities (DPA). SOC consists of basic devices that include road expenses, power, communications, transport, and irrigation works. Such investments create other economies, and are controlled by public agencies (Bhopal, 2013). DPA consists of activities that are as a result of investing in goods and services. Private entrepreneurs control DPA. Hirschman is of the opinion that the economy can grow by either unbalancing through SOC or unbalancing through DPA. Investing in SOC will stimulate the investment in DPA and vice-versa (Bhopal, 2013). Below is a diagram showing the path of development. The curve that is highest demonstrates a higher level of output.

Diagram showing the path of development using the unbalanced growth model (Bhopal, 2013)

Criticisms of the balanced and unbalanced growth models
The two growth models have been criticized for their shortcomings. The criticisms of the balanced growth model include the fact that it is not feasible for poor countries; the model challenges comparative advantage because it is based on a closed economy; failure is caused due to the bureaucracies created as a result of government planning; and poor growth due to policies based on substitution of imports, and control of state (Bhopal, 2013). The criticisms of the unbalanced growth model include doubts on the correct selection of sectors; the model is based on speculation; occurrences of bottlenecks in sectors that suffer from shortages; the criteria used in sector selection is questionable; low demand for the output in the strategic sectors; inflation; ignorance of the possible obstacles that other sectors face when establishing themselves; wastage of resources; and increased uncertainty of the growth of the economy (Bhopal, 2013).

Conclusion

The balanced and unbalanced growth models have a great impact in the growth of the economy. Their approaches are different, but their goal is the same. The balanced growth model works well for developed countries because there is availability of resources. The unbalanced growth model works well for the underdeveloped countries because the resources are not enough to be equally distributed to all the sectors of the economy. Both models have been criticized for their shortcomings, but they have also proven to be effective in accomplishing their goals.

Bibliography

JDSTH, 2011. Balanced and Unbalanced Growth. [Online] JDSTH. Available at: https://jdsth.wordpress.com/2011/02/01/balanced-and-unbalanced-growth/ [Accessed 13th January 2015]
Bhopal, S. P. A., 2013. Balance and Unbalanced Growth. [Online] Slideshare. Available at: http://www.slideshare.net/reeshib/balace-unbalance-growth [Accessed 13th January 2015]