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What is Balanced Growth theory?
Balanced Growth theory:
This theory argues that market is not capable to deliver growth. State approaches to development are needed since entrepreneurs do not:
• Expect a market for extra output
• It cannot internalise their positive externalities for example trained employees may leave to work for the other companies
• Do not expect the positive externalities generated through the investment of other firms engaged into expansion
• Are unable to increase finance for projects
When a large number of various manufacturing industries are created concurrently then markets are created for extra output. For illustration, firms producing last goods can determine domestic industries which can supply them along with their inputs. The advantages of growth are spread over all sectors and preferably, regions balanced growth is connected with industrialisation and government development or a command economy planning.
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