Economics(Paper-4) - Shivaji University

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its over-enthusiasm for capital formation. Today, development depends increasingly upon technique and less on direct capital formation in productive processes. 6. Not Supported by History: The big push theory seems to suggest that whenever a large scale influence is exerted on the process of capital formation, a stationary economy probably begins to develop. Furtado stated that this is not confirmed by history. 2.2.4 Myrdal’s Theory of Circular Causation Prof. Gunnar Myrdal maintains that economic development results in a circular causation process results in rapid development of developed countries while the weaker and backward countries tend to remain behind and poor.The theory of circular causation has been built upon the two effects viz. the backwash effects and the spread effects. The circular causation theory emphasizes that poverty is further perpetuated by poverty and affluence is further promoted by affluence. In backward regions problems created more problems; in developed regions solutions solve all problems. There is a failure story and there is a success story. The rebounded effects and circular causation effects are the net result of the backwash effects and spread effects. In an underdeveloped country, the backwash effects are predominant and the spread effects are dampened. This tends to regional inequality as well as international inequality. The traditional theory is not able to explain the problem of development in underdeveloped countries and it is based of unrealistic assumptions of stable equilibrium. Myrdal builds a new theory of economic under development and development which is capable of solving regional and international inequalities on national and international plans. He tries to explain his theory with ‘Backwash’ and ‘Spread’ effects. 1. Backwash Effects : Myrdal defines backwash effects as, “all relevant adverse changes….of economic expansion in locality….caused outside the locality. I include under this label the effects viz. migration, capital movements and trade resulting from the process of circular causation between all the factors, ‘noneconomic’ as well as ‘economic’”. In short, ‘backwash effects’ have unfavourable effects of economic expansion. The migration of people from backward regions results in regional imbalances. The developing economy will attract young and active people from other parts of the country.This will tend to favour the developing region and will depress the other backward region from where people migrate. Capital shifted from poorer region to prosperous where the rate of return is high and capital is more secure. Therefore the poor regions make poorer again. Another 123456789012345678901234567890121234567 123456789012345678901234567890121234567 26 123456789012345678901234567890121234567 123456789012345678901234567890121234567 123456789012345678901234567890121234567 123456789012345678901234567890121234567 123456789012345678901234567890121234567 123456789012345678901234567890121234567
disequalising force is trade, which is in favour of developed countries and against the backward countries. The progressive regions will have better competitive advantages and markets. The expansion of trade tends to create regional inequalities in underdeveloped countries. The circular causation will also act to sustain and expand these cumulative stagnating forces. Therefore, the result is that, the developed regions become further developed and underdeveloped regions become further underdeveloped. 2. Spread Effects: According to Myrdal, “certain centrifugal ‘spread effects’ or expansionary momentum from the centres of economic expansion to other regions”. The spread effects are favourable effects for economic developed. The growths of industrial localities have also some good effects on other areas too. The whole region will experience advantageous effects regarding demand, technology, market etc. These favourable effects are called spread effects. These ‘spread effects’ will try to neutralize the backwash effects to a greater extent. According to Prof. Myrdal, “the spread effects in underdeveloped countries are weak and they are not capable of balancing the backwash effects and regional imbalances.” B Role of State: The free play of market, price mechanism and Laissez-faire policy has created more regional inequalities in the presence of weaker spread effects. Therefore, the government should take steps to spread effects to avoid poorness of the regions and to bring economic development in circular causation. In other words, the government of underdeveloped countries should adopt equalitarian policies to reduce the backwash effects and strengthen the spread effects in order to eliminate regional inequalities. Myrdal states in his theory, the reason of backwardness of an economy. The economy is backward because it is backward. He said that a country is poor because the domination of backward effect. 2.3 Summary : These theories are useful to decide development path to underdeveloped countries in the world. Rostow’s theory of economic development stages have useful to know the development of human beings. Lewis theory of unlimited supply of labour is said that, an underdeveloped country can progress to use unlimited labour availability.The Rodan’s theory of big push said to us for development of an underdeveloped economy has greater investment in all sectors in economy.And the circular causation theory of Myrdal tells us the reason of backwardness of an economy.These theories are important to policy makers to making policy for development of economy. 2.4 Glossary of Terms a) Dual Economy: existence of two sectors in economy 27 123456789012345678901234567890121234567 123456789012345678901234567890121234567 123456789012345678901234567890121234567 123456789012345678901234567890121234567 123456789012345678901234567890121234567 123456789012345678901234567890121234567 123456789012345678901234567890121234567 123456789012345678901234567890121234567
Page 1 and 2: B. A. Part-III : Economics Paper 4
Page 3 and 4: 7) “ Economic development is a pr
Page 5 and 6: underdeveloped countries in compari
Page 7 and 8: developing states through the progr
Page 9 and 10: 7) Goals : objectives. 8) Disguised
Page 11 and 12: UNIT - 2 Theories of Economic Growt
Page 13 and 14: structure of the traditional societ
Page 15 and 16: help of example, “If we take marg
Page 17 and 18: promote and enhance social welfare.
Page 19 and 20: B The Closed Economy : Assumptions
Page 21 and 22: B The Process of Economic Expansion
Page 23 and 24: consider the possibility of the cap
Page 25: gap between income and expenditure
Page 29 and 30: 8. Rostow developed his theory in
Page 31 and 32: UNIT - 3 Domestic Measures for Econ
Page 33 and 34: all kinds. Hence, capital formation
Page 35 and 36: policy. But these trio are and may
Page 37 and 38: 1) Provision of food to evergrowing
Page 39 and 40: the country.The central bank contro
Page 41 and 42: 7) Public Spending : Fiscal policy
Page 43 and 44: 3.3 Conclusion / Summary : Capital
Page 45 and 46: UNIT - 4 International Measures for
Page 47 and 48: Y P S C Import E D P O X1 X2 B X Ex
Page 49 and 50: for the developing countries has al
Page 51 and 52: they are entitled to get dividend a
Page 53 and 54: 4) Infrastructure : Since last thre
Page 55 and 56: III) Advantages of Multi-national C
Page 57 and 58: oundaries of nation states. 2) Mean
Page 59 and 60: 4.3 Summary : 1) Role of Foreign Tr

Economics(Paper-4) - Shivaji University

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