Balanced Growth vs Unbalanced Growth 균형성장과 불균형성장

균형성장과 불균형 성장에 대한 토론자료랑 기말고사 준비 내용이다. 여러 책이랑 수업시간에 배운 내용들을 적었다. 허접한 영어실력은 양해부탁..

Compare and contrast the balanced and unbalanced growth approaches to structural change in developing countries. (2010)

Ragnar Nurkse and Paul Rosenstein-Rodan are main proponents of Balanced Growth Theory. BG can be explained as the synchronised application of capital to a wide range of different industries, according to Nafziger. Rosenstein-Rodan was initially concerned with the post-war development of Eastern and South Eastern Europe. He argued that industrialisation was the only way to alleviate the 25% unemployment rate due to excess agricultural workers. In a non-surplus producing agricultural economy there is no initial demand for manufactured goods Moreover, because of small domestic market, underdeveloped country cannot escape vicious circle of poverty. Therefore, he argued that government should invest with co-ordination to balanced growth. Infrastructure and other large-scale investments are subject to indivisibilities due to external economies. Accoding to Rosenstein-Rodan , two elements, Big push and Balance are significantly important. Big Push is a critical minimum effort is required to overcome indivisibilities in the productive processes on both the demand and supply side of the market. Furthermore, The path of development and the pattern of investment must be balanced between the sectors of the economy to ensure its smooth functioning. This theory is suitable the country where has abundant resources, smoothly-functioned market, and reliance on domestic demand. However, many economists argues that BG theory has got many weaknesses. BG theory is difficult to test empirically the theory as a whole. Streeten insisted that not external economies but economies of scale within the firm that matter most. Hirschman criticized BG theory, argued that normally underdeveloped country cannot successfully carry out a big push. If it is possible, it would not be underdeveloped in the first place.

Proponents of UBG insists that poor country should use UBG theory because Resource limits in LICs means prioritising needs to happen (in this case, choose proper strategic sectors important). Imbalance creates excess capacity which in turn creates shortages elsewhere leading to opportunities for profit, so called bottleneck effect. This is the dynamic development process. The most importantly, the strategy of UBG can bring about backward-forward linkage effect. Backward linkages refers that growth of a set of industries stimulates the growth of those which supply raw materials. Setting up a car plant for example, would stimulate the demand for steel scrap, fuel and other related goods. Production of these goods will accordingly increase. Forward linkages refer to the growth of certain industries owing to the initial growth of those which supply raw materials. Expansion of car industry, for example, will encourage industries building motorway or insurance industry. This UBG strategy is suitable for the country where the natural resources are poor, or possible to find foreign market by exporting products. Moreover, in those countries where there is significant state control. For instance in socialist countries, this strategy is followed with some success. In a socialist society, the consumption of all people is maintained at a modest level, thus reducing demand for consumer goods.

 

 

If government uses UBG strategy through Social Overhead Capital (basic infrastructure that cannot be imported), it stimulates investment in DPA, according to Hirshman. For example, availability of cheap electricity encourage the growth of small scale industries. Development of irrigation stimulate the growth of agricultural works. On the contrary, If government uses UBG strategy through Directly Productive Capital (involved in producing final goods), it brings about investment in SOC.Invest in steel plant itself stimulate the growth of

infrastructure provision for the plant (water, electricity, transport etc).

 

However, UGB theory also have limited advantages. First of all, Bottlenecks can lead to inflationary pressures. Moreover, government or policy planners are hard to determine which industries have most linkage effects. Most importantly, most underdeveloped economies are primarily agrarian. Agriculture is typically at a primitive stage and hence possesses few linkages, as most output goes for consumption or exports. Therefore underdeveloped countries are lacking in interdependence and linkages. Moreover, It neglects agriculture. In heavily populated countries with agricultural economies, neglect of agriculture could be suicidal. Shortage of agricultural goods can emerge as a serious constraint to industrialization; unless income from agricultural goods expands, the market for industrial products remains limited. Unbalanced growth can also lead to emergence of inflationary pressures in the economy, as a shortage of agricultural commodities will push up commodity prices.

 

 

Are balanced and unbalanced growth strategies necessarily conflicting approaches to development? (2012)

The debate between balanced and unbalanced growth theorists is an essentially barren encounter.’ Discuss. (2009)

However, it is difficult to say that both theories are conflict. Because proponent of BG cannot strongly deny the importance of certain industry when the country develops. on the contrary, proponent of UBG also cannot agree with investing capital into certain industry extremely while they ignore the derivative demand of product. Therefore, both theories are relevant, and have advantages, but emphasis points are different.

 

 

Example 1. Can question real difference between BG and UBG ?

The case of South Korea shows that we cannot actually distinguish UBG or BG strategy, because it strongly depends on people’s view. In South korea, Policy planners selected a group of strategic industries including electronics, shipbuilding and automobiles. BUT, also made heavy social and infrastructure investments with the help of external aid. New industries were nurtured by making the importation of such goods difficult and by subsidising exports. They created the backwards linkages for development of steel and other heavy machinery and infrastructure, however, these industries were also heavily supported by the state, so not entirely self-perpetuating process.