Reply To: Nurkse's Balanced Growth Theory


As I understand it, Nurske’s theory is if the state of an underdeveloped country takes the wealth of its poor citizens and spends it on capital projects across the economy it will increase productivity which will then expand markets domestically. That way, the underdeveloped country can enjoy economic growth without integrating into the world economy.

His argument defies every sound economic theory about economic growth. Economic growth requires capital accumulation, i.e., saving and investing directed by entrepreneurs into capital projects that produce goods that satisfy people’s preferences. The quickest way for poor people to experience economic growth is to integrate their activities into the already developed world economy. Then they can rely upon the saving, production, and entrepreneurship of other people instead of merely their own.

Take a look at P.T. Bauer’s book, Equality, The Third World, and Economic Delusion and David Osterfeld, Prosperity versus Planning,