Direct Verdict: The Big Push Theory is a theory of economic development that argues that poor countries may need a large, coordinated investment effort across many sectors to escape a low-level equilibrium or “poverty trap.”
Big Push Theory of Development
The Big Push Theory was mainly developed by Paul Rosenstein-Rodan in 1943 in his influential article “Problems of Industrialisation of Eastern and South-Eastern Europe.” The theory explains why developing economies may fail to industrialise if investment takes place only on a small scale or in isolated industries.
The central idea is that development requires a sufficiently large and coordinated investment programme rather than scattered, small investments.
1. Meaning of the Big Push
The term “Big Push” means a large-scale and simultaneous investment in several complementary industries and infrastructure.
According to Rosenstein-Rodan, an individual investor may hesitate to establish a factory in a poor economy because there may not be enough consumers with purchasing power to buy its products.
However, if many industries develop simultaneously, workers employed in one industry become consumers of products produced by other industries.
Therefore:
Investment in one industry creates demand for products of other industries, and investment across many industries can generate a self-sustaining process of economic growth.
Simple example
Suppose a poor country establishes only a shoe factory.
The factory employs 1,000 workers. But if the rest of the economy remains poor, there may be insufficient demand for shoes. The factory may therefore remain unprofitable.
Now suppose the country simultaneously develops:
- Shoe manufacturing
- Textile manufacturing
- Food processing
- Housing
- Transport
- Banking
- Electricity
- Steel production
Workers employed in these industries earn income and spend it on products produced by other industries.
This creates a larger market, allowing industries to become profitable.
2. Background of the Theory
Developing countries generally face several problems:
- Low income
- Low purchasing power
- Low savings
- Low investment
- Poor infrastructure
- Small domestic markets
- Low productivity
- Unemployment or underemployment
- Lack of industrialisation
These problems can reinforce one another.
For example:
Low income → Low demand → Low investment → Low productivity → Low income
This creates a vicious circle of poverty.
The Big Push Theory argues that a sufficiently large investment programme can break this cycle.
3. Main Objective of the Big Push
The primary objective is to move an economy from a low-level equilibrium to a higher level of development.
The economy may initially be trapped in a situation where:
Low investment → Low productivity → Low income → Low demand → Low investment
A Big Push attempts to break this cycle:
Large coordinated investment → Employment → Higher income → Higher demand → Larger market → Greater investment → Higher productivity → Economic growth
4. Why a Small Investment Is Not Enough
This is one of the most important aspects of the theory.
Rosenstein-Rodan argued that individual investment projects may not be profitable when undertaken separately.
Why?
Because industries are interdependent.
For example, imagine a country builds a modern automobile factory but does not develop:
- Roads
- Electricity
- Steel
- Component manufacturing
- Banking
- Skilled labour
- Repair services
The automobile factory may face very high costs and insufficient demand.
But if these complementary sectors are developed together, the automobile industry becomes more viable.
Thus, the profitability of one investment can depend on investments in other industries.
This is called complementarity of investment.
5. Complementarity of Investment
The concept of complementarity is central to Big Push Theory.
Investment in one industry increases the profitability of investment in another industry.
Example
Suppose:
- A textile factory produces clothes.
- A chemical industry produces synthetic fibres.
- A machinery industry produces textile machines.
- A transport industry moves raw materials and finished products.
- Banks provide credit to businesses.
Investment in each sector supports the others.
Therefore:
Industry A → Demand for Industry B
Industry B → Demand for Industry C
Industry C → Demand for Industry A
This creates a network of mutually reinforcing investments.
6. Expansion of the Market
Another important concept is the size of the market.
Poor countries often have very small domestic markets because people’s incomes are low.
A single modern factory may therefore find it difficult to sell enough products.
But simultaneous industrialisation increases employment and wages.
Workers then spend their income on goods produced by other industries.
For example:
Factory A employs workers
↓
Workers receive wages
↓
Workers purchase products from Factory B
↓
Factory B earns revenue and employs workers
↓
Workers from Factory B purchase products from Factory A and C
↓
Demand expands throughout the economy
This is known as the market-size effect.
7. External Economies
Big Push Theory also relies heavily on external economies.
An external economy occurs when the actions of one firm or industry generate benefits for other firms or industries.
For example, when a country develops an industrial area, it may create:
- Better roads
- Electricity networks
- Skilled labour
- Suppliers
- Financial services
- Communication systems
- Training institutions
These benefits can reduce the costs faced by other businesses.
Thus, industrialisation can generate economies that individual firms cannot create by themselves.
8. Role of Infrastructure
A Big Push generally requires substantial investment in infrastructure.
Important infrastructure includes:
Economic infrastructure
- Roads
- Railways
- Ports
- Electricity
- Telecommunications
- Irrigation
- Water supply
Social infrastructure
- Schools
- Universities
- Hospitals
- Skill-training institutions
- Public health systems
Infrastructure increases productivity and makes private investment more attractive.
For example:
A factory may not be established in a region without reliable electricity.
But once electricity, roads and transportation are provided, private firms may find investment profitable.
9. Role of the Government
The theory gives an important role to the government.
The problem is that individual private investors may not coordinate their investment decisions.
Each investor may think:
“Why should I invest if other industries are not developing?”
This can lead to a coordination failure.
Government intervention can help coordinate investment across sectors.
Government may therefore invest in:
- Infrastructure
- Education
- Healthcare
- Energy
- Transportation
- Basic industries
It may also encourage private investment through appropriate policies.
The government’s role is particularly important where large initial investments involve benefits that spill over to other industries.
10. Industrialisation and the Big Push
Rosenstein-Rodan particularly emphasised industrialisation.
Developing economies traditionally depended heavily on agriculture and primary commodities.
Industrialisation can generate:
- Higher productivity
- Employment
- Higher wages
- Technological progress
- Urbanisation
- Larger markets
- Greater savings
- Increased investment
However, industrialisation should not necessarily mean developing just one industry.
The Big Push requires broad-based industrial development so that industries support one another.
11. Social Overhead Capital
Another important concept associated with the theory is Social Overhead Capital (SOC).
Social overhead capital refers to basic infrastructure and services required for economic activity but which individual firms may not be willing or able to provide themselves.
Examples include:
- Roads
- Railways
- Electricity
- Ports
- Communication
- Education
- Public health
These investments often require large amounts of capital and have long gestation periods.
Because they benefit many industries simultaneously, government or coordinated public investment can be important.
12. Hidden Unemployment and Labour Transfer
In developing economies, particularly those dependent on traditional agriculture, there may be surplus or underemployed labour.
Industrialisation can transfer workers from low-productivity activities into higher-productivity industries.
For example:
Traditional agriculture
↓
Workers move into manufacturing
↓
Industrial productivity increases
↓
Income increases
↓
Demand increases
↓
Further industrialisation occurs
This can contribute to structural transformation.
13. Savings and Capital Formation
Economic development requires capital formation.
The Big Push encourages investment that can increase:
- Employment
- Income
- Productivity
- Profits
- Savings
Higher income can lead to greater savings, which can finance further investment.
Thus, the process may become cumulative:
Investment → Employment → Income → Savings → Investment
This helps move the economy towards sustained growth.
14. Big Push and Poverty Trap
The theory can be understood through the idea of a poverty trap.
A simplified poverty trap looks like this:
Low income
↓
Low purchasing power
↓
Small market
↓
Low expected profitability
↓
Low investment
↓
Low productivity
↓
Low income
The Big Push attempts to break this cycle through a sufficiently large investment programme.
Big Push mechanism
Large-scale investment
↓
Industrialisation
↓
Employment creation
↓
Higher income
↓
Greater demand
↓
Expansion of markets
↓
Higher profitability
↓
More private investment
↓
Higher productivity and economic growth
15. Assumptions of Big Push Theory
The theory is based on several important assumptions.
1. Economies of scale
Industries may operate more efficiently when production takes place on a sufficiently large scale.
2. Complementarity
Different industries depend on one another.
3. Imperfect coordination
Private investors may not coordinate their decisions effectively.
4. Limited domestic market
Poor countries initially have low purchasing power and small markets.
5. External economies
Investment in one industry can create benefits for other industries.
6. Underdeveloped infrastructure
Poor infrastructure restricts industrialisation.
7. Government intervention
Public authorities may be required to coordinate large-scale investment.
16. Diagrammatic Explanation
You can represent the basic idea in an exam as:
BIG PUSH
│
↓
Large-scale Investment
│
↓
Simultaneous Industrialisation
│
┌───────┴────────┐
↓ ↓
Employment Infrastructure
│ │
↓ ↓
Higher Income Lower Costs
│ │
└───────┬────────┘
↓
Higher Demand
│
↓
Larger Market
│
↓
Higher Profitability
│
↓
More Investment
│
↓
Higher Productivity
│
↓
Economic Development
17. Example
Imagine a developing country where most people are poor and agriculture dominates.
Suppose the government and private sector jointly invest in:
- Electricity
- Roads
- Textile factories
- Food-processing industries
- Steel
- Construction
- Banking
- Education and training
The new industries employ thousands of workers.
Workers receive wages and purchase:
- Clothes
- Food
- Housing
- Transportation
- Consumer goods
This increases demand for products from different industries.
As firms experience greater demand, they invest more.
The economy therefore moves from a low-investment equilibrium toward a higher-investment growth path.
