this theory of Unbalanced growth was given by Prof. A.O. Hirschman

1. Prof. A.O. Hirschman
ANJALI SINGH

2.  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

3.  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

4.  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

5.  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

6.  Hirschman Says, a choice has to be made
between SOCs and DPAs.
ANJALI SINGH

7.  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

8.  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

9. 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

10.  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

11.  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