THEORY OF

UNBALANCED
GROWTH
Prof. A.O. Hirschman

ANJALI SINGH

INTRODUCTION

This theory suggests to select priority sectors or

strategic sectors and invest heavily on them and
the other sectors would automatically develop.

As UDCs are not capable of investing in all the

sectors simultaneously due to lack of resources and
many other factors.

The best strategy of development is the creation of

imbalances in the economy, since it is observed
that the efforts to correct disequilibrium
constitutes a major step for the progress of
economy.
ANJALI SINGH

INTRODUCTION

Investment should me made in some sectors

rather than all.

According to hirschman, development Is a chain

of disequilibrium which must be kept alive rather
than eliminate the disequilibrium of which profits
and losses are symptoms in a comptt. Economy.

If the economy is to be kept moving ahead, the

task of development policy is to maintain
tensions, disproportions and disequilibrium.
ANJALI SINGH

CLASSIFICATION OF SERIES OF
INVESTMENT

Convergent Series of Investment : it implies

sequence of creation and appropriation of external
economies. Therefore, investment made in these
projects appropriate more economies than they
create.
Influenced by profit motive.
Undertaken by the Private entrepreneurs.
Convergent series of investment are made directly
productive activities.
Directly productive activities include
manufacturing.
ANJALI SINGH

CLASSIFICATION OF SERIES OF
INVESTMENT

Divergent Series of Investment : It refers to those

projects which appropriate less economies then
they create.
Influenced by objective of social desirability.
Such investments are taken up by Public agencies
divergent series of Investment have greater social
desirability in social overhead.
SOC implies all those basic services without which
primary, secondary and tertiary productive
activities cannot function.
It includes investment in education, public health,
public utilities, infrastructure development
ANJALI SINGH

Hirschman Says, a choice has to be made

between SOCs and DPAs.

ANJALI SINGH

CASE-I : UNBALANCING THE

ECONOMY WITH SOC

The correct approach for economic development

is, to unbalance the economy to initiate
investment in SOC.

Some SOC investment is required as a pre-requisite

of DPA investment.

Investment first should be made for the welfare of

the society.

It is pressure relieving investment or development

via excess of SOC.
ANJALI SINGH

CASE-II : UNBALANCING THE

ECONOMY WITH DPA

This process of development is called development

via shortage of SOC.

First investment is made in the DPA.

Shortage of SOC will raise the cost of production and

the price also.

There will be pressure on the Government to put SOC

in place.

Due to internal pressure and incentive the rate of

economic growth tends
to be faster.
ANJALI SINGH

THE PATH TO DEVELOPMENT

EXPLANATION

GRAPH

45 degree line shows ideal

balanced growth of DPA and
SOC.
AA, BB, CC are isoquant
curves for DPA and SOC that
shows there various
combinations that gives same
GNP at any pt of time.
Higher curve, higher GNP
D, G, K optimal points.
ANJALI SINGH

Here, prof. Hirschman makes

two Assumptions:
a) SOCs and DPAs cannot
increase at the same time.
b) Investment should be such
that it maximizes induced
decision making.
) Expanding SOC,
development path DEGHK.
) When investment in SOC
increases from D to E,
investment in DPA increases
from D to F until the
balance is restored at G,
which is on higher isoquant.

ANJALI SINGH

If the case II is selected, the

development path will be
DFGJK.
When DPA investment
increases from D to F, SOC
increases from D to E until
eqm. is restored at G, which
is on a higher isoquant, BB.
Whole economy will be on a
higher level of output, which
would encourage more
investment in DPAs.

ANJALI SINGH