The Nurkse theory of balanced growth, also known as the balanced growth theory, was developed by the Estonian economist Ragnar Nurkse in the mid-20th century. The theory focuses on the concept of balanced development or balanced growth in developing countries.
According to Nurkse, balanced growth refers to a strategy of economic development that aims to achieve simultaneous progress in all sectors of the economy. He argued that in order to achieve sustained economic growth, developing countries need to allocate resources across different sectors in a balanced manner, rather than focusing on a single sector.
Nurkse identified three main interrelated factors that are crucial for achieving balanced growth:
- Investment: Nurkse emphasized the significance of investment in productive capacity as a driving force for economic development. He believed that developing countries need to invest in a wide range of sectors to avoid bottlenecks and ensure balanced growth.
- Linkages: Nurkse highlighted the importance of creating strong linkages among different sectors of the economy. He argued that the growth of one sector can stimulate the growth of other sectors through backward and forward linkages. For example, the development of agriculture can create a demand for manufactured goods, leading to the growth of the manufacturing sector.
- Capital accumulation and capital-output ratio: Nurkse emphasized the need for developing countries to accumulate capital at a faster rate than their population growth. He argued that a high capital-output ratio, which indicates the efficiency of capital utilization, is essential for achieving balanced growth.
Nurkse’s theory of balanced growth was a response to the prevailing theories at the time, such as the Harrod-Domar model, which emphasized the role of investment but did not address the issue of balanced development. Nurkse’s theory influenced subsequent development theories and policy frameworks, particularly in the field of industrialization and economic planning in developing countries.
However, it is important to note that the Nurkse theory of balanced growth has also faced criticism. Some economists argue that the concept of balanced growth may not be applicable to all countries and that focusing on specific sectors or industries may be more effective in certain contexts. Additionally, the theory does not provide specific guidance on how to achieve the desired balance or how to overcome the challenges of resource allocation in practice.