The ‘big push’ theory

Question 1

what was the idea behind the big push theory? (Developmental programme by Rosenstein Rodan in 1943)

Answer 1

The ‘big push’ theory was presented by Rosenstein Rodan in 1943. The idea behind this theory is that a big and comprehensive “investment package is necessary to bring economic development.”

a certain minimum amount of resources must be devoted to developmental programs for these programmes to be successful.

Question 2

when did The big push came to grief? 1970s and 1980s - Africa

Answer 2

in the 1970s and 1980s as evidence accumulated that, in Africa at least, public investment and foreign aid had produced no perceptible change in productivity, not least because so much of it was stolen.

Question 3

Goal of The Big push - Jeffrey Sachs

• Investment/Aid => crowd in external investment

Answer 3

Jeffrey Sachs of Columbia University argues that if public investment and foreign aid are big enough, they will boost household incomes, spurring savings and boosting local investment.

They should also “crowd in” external investment by improving infrastructure.

• Investment/Aid = Increase Household incomes = increase savings = local investment = crowd in external investment if projects are seen e.g improving infrastructure

Question 4

Jeffrey Sachs ‘millennium village project’ in rural Africa setting up a project of $150m.

What were the resullts?

Answer 4

the project had extraordinary results - project has improved the life of the village.

However, it is argued that these results might had happened without the programme.

Question 5

effectiveness of the ‘millennium village project’ in rural Africa setting up a project of $150m.

• the randomised trials -

Sachs vs David McKenzie of the World Bank

Answer 5

• A randomised trial was used to test the effectiveness of the project ( each village would be paired with a similar one not getting the same help—and the results could be compared)
• However, Mr Sachs considered that randomised trials could not identify the effectiveness of the project. In particular, he argued that comparing a millennium village with a randomly chosen one is ineffective.

+ David McKenzie of the World Bank explained that the randomised trials could be able to track the effects of the project if these effects are substantial.

Question 6

1. Effectiveness of the programme: Feasibility in developing countries

Answer 6

There are several reasons why this “Big push” strategy may not be feasible, particularly in developing countries with weak institutions and governance structures:

• resource constraints: limited financial resources, insufficient infrastructure, and a lack of human capital. Large-scale investments require substantial funding and resources, which these countries may not have. Also problem with a trade-off - the risk of depleting resources from other critical areas such as healthcare and education.
• administrative capacity limitations: Many developing countries suffer from weak administrative structures that might lack the capacity to manage such extensive projects effectively. This can lead to inefficiencies, corruption, and project failures.
• coordination challenges: success of programme depends on coordination across multiple sectors and actors, including government agencies, private firms, and international donors - Poor coordination can result in misaligned incentives, conflicting goals, and inefficient allocation of resources,

Question 7

2. Effectiveness of the programme: Trade-off - comparative advantage

Answer 7

Some argue investments should be prioritised based on sectoral or regional comparative advantages - achieve quicker gains in productivity and growth when specialising
- Focusing only on areas of comparative advantage might lead to uneven development, concentrating growth in certain sectors or regions while neglecting others, potentially exacerbating social and economic disparities.

while others advocate for a more comprehensive and simultaneous approach.
investments across multiple sectors are necessary to overcome the structural barriers to development in economically lagging regions
- trying to invest heavily across multiple sectors simultaneously can overstretch a country’s administrative and financial capacities, leading to inefficient outcomes and failed projects.

Question 8

3. Effectiveness of the programme: Crowd Out private investment & consequence of govt into

Answer 8

“Big push” may crowd out private investment: When the government undertakes large-scale spending, it can lead to higher interest rates as the government competes for available financial resources, which can make borrowing more expensive for private sector entities
- If private investors perceive government projects as dominant or likely to fail, they may also hesitate to invest, fearing negative spill-overs on their investments.

with only govt intervention - may lead to inefficiencies and resource misallocation ( investing heavily in a sector where the country does not have a comparative advantage can result in a production process that costs more than what is internationally competitive)

additionally, if government interventions distort market mechanisms or fail to address underlying structural constraints, such as poor infrastructure, weak legal systems, corrupt practices, and inefficient bureaucracies, then even well-funded initiatives may fail to yield the intended economic growth.

Question 9

4. Effectiveness of the programme: Dependency on Aid/invtervention without addressing other issues

Answer 9

There are concerns about dependency on external aid or government intervention in the long term, as well as the sustainability of growth generated by a “big push” strategy without addressing deeper structural issues such as institutional weaknesses and governance challenges.

When countries rely heavily on external aid or extensive government intervention to stimulate economic growth, there is a risk that these economies become dependent on such aid. This dependency can manifest as a lack of incentive for governments and local industries to develop self-sustaining mechanisms for growth and innovation.
- Dependency can make an economy vulnerable to fluctuations in aid flows or changes in government policies. Moreover, if aid or government support is withdrawn or reduced, the economy may struggle to maintain the growth levels it achieved during the periods of high intervention.

Effective institutions, good governance, a robust legal system, transparent regulatory frameworks, and efficient public services are all crucial for long-term sustainable growth. Without addressing these foundational aspects, growth achieved through a “Big Push” may be superficial and short-lived.
- Impact of Ignoring Structural Issues: If the “Big Push” focuses only on physical capital and technology without improving institutions and governance, the potential for corruption, inefficiency, and misallocation of resources increases. These problems can undermine the initial gains from large-scale investment.