Big Push

Topics: Investment, Supply and demand, Economy, Economic development / Pages: 6 (1213 words) / Published: Jul 11th, 2015
What is Big-Push theory of economic development?

The theory of "bigh push' is associated with the name of Professor Paul
N. Rosenstein-Rodan. This theory is needed in the form of a high minimum amount of investment to overcome to obstacles to development in an underdeveloped economy and to launch it in the path of progress.
Rosenstein-Rodan distinguishes between three different kinds of indivisibilities and external economies. One, indivisibilities in the production function, especially the indivisibility of the supply of social overhead capital; two, indivisibility of demand; and three, indivisibility in the supply of savings. Let us analyse the role of these indivisibilities in bringing economic development.
Indivisibilities in the Production Function :
According to Rosenstein-Rodan, indivisibilities of inputs, outputs or processes lead to increasing returns. He regards social overhead capital as the most important instance of indivisibility and hence of external economies on the supply side.
The services of social-overhead capital comprising basic industries like power, transport, and communications are indirectly productive and have a long gestation period. They cannot be imported installations require a "sizeable initial lump" of investment. So excess capacity is likely to remain in them for some time.
They also excess "an irreducible minimum industry mix of different public ties, so that an underdeveloped country will have to invest between K per cent of its total investment in these channels.
"Thus, social overhead capital is characterised by four indivisibilities, of, it is irreversible in time and, therefore, must precede other directly productive investments. Second, it has a minimum durability, is making it very lumpy.

Third, it has a long gestation period. Last, it is an irreducible minimum industry mix of different kinds of public utilities. These indivisibilities of supply of social overhead capital are all of the principal obstacles to
development

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