Easy Explained Big Push Theory: The Big Push associated by professor Paul N. Rosenstein-Rodan. The thesis is that “Big Push” or a large comprehensive program is needed in the form of a high amount of investment and to overcome the obstacles to growth in an underdeveloped economy and to launch it on the path of progress.
Launching an economy into self-sustained growth is little like an airplane off the ground, rather a minimum amount of investment is not launching the economy.
It necessitates obtaining external economies. The indivisibilities and external economies launching a country to development path.
The professor distinguishes three kinds of indivisibilities and external economies.
Indivisibility in the production function
According to by Rosenstein-Rodan, indivisibilities of inputs, outputs, or processes leads to increasing return.
He regards the social overhead capital as the most important intense of indivisibility and external economies on the supply side.
The services of social overhead capital comprising basic industries, like power, transport, and communication.
The social overhead capital characterized in four kinds. Firstly, it is irreversible in time, second, it has minimum durability, third, it has a long gestation period.
Lastly, it has irreducible minimum industry. Therefore, a high initial investment in social overhead capital is necessary in order to pave the way for quickly yielding directly productive investment.
Indivisibility of Demand
The indivisibility or complimentarily of demand requires simultaneous setting up of interdependent industries in underdeveloped countries.
This is because individual investment projects have high risks as low-income limits the demand for their products.
In this diagram, the curve ATC and MC represent the cost of a plant that is a little smaller than the optimum size plant D1 and MR1 are the demand and marginal revenue curves.
Production is OQ1 and sells OP1 which does not cover the ATC. So the factory is increasing CabP1 less.
The demand for shoes rises to D4. The production is increased OQ4 and sells OP4 than P4RST is the profit of a factory.
Indivisibility in the Supply of Saving
A high-income elasticity of saving is the third indivisibility of Rosenstein’s theory. A high minimum size of the investment it requires a high volume of saving.
It is not easy to achieve in underdeveloped countries, because of low incomes. To overcome this it is essential that when an increase in income due to an increase in investment the marginal rate of saving should very much higher than the average rate of saving.
Given these three indivisibilities and external economies to which they give rise, a “Big Push” of investment is required to overcome, the obstacles to development in underdeveloped countries.
Proceeding bit by bit in an insolated and small way does not lead to a sufficient impact on growth.
A climate for development is only created when the investment of a minimum speed or size is made within underdeveloped countries.
The big push theory, however, not free from the defects.
Negligible from investment for imports and exports substitutes.
The main justification of the big push in investment on social overhead capital is the extensive external economies. But keeps silent over another reality in the newly developing countries investment for export and for marginal import substitute occupies a large chunk of total investment. The external economies arguments for a “big push” losses its justification become external economies are negligible in the above type of investment.
Negligible cost-reducing investment
Even in the production of local consumer goods, external economies can be realized in a limited way external economies are negligible in the case of cost-reducing investment.
Neglects the investment in the agriculture sector
One of the main principles of defect is that it is emphasis all type of inductive export the agricultural sector.
Another point is that the social overhead capital used in long run due to this the consumption goods are reduced and inflationary pressure has occurred, so the social overhead is retard the economy and not accelerate it.
Low Investment increase in output
The big push theory emphasis that high investment increases the output but professor Johan Adler neglect this theory. He says about the development of the world economy low investment results in an additional investment increase in output.
Administrative and institutional defects
There is mined economy in new developing countries. They are not supported by each other in the administrative and institutional sector even they competition in every sector due to this the administrative and institutional defects.
The big push theory neglect the historical. So this is the defect of the big push theory. Historically, the absence or is not compulsory for growth.