Page 219 - DECO501_ECONOMICS_OF_GROWTH_AND_DEVELPOMENT_ENGLISH

Unit 22: Critical Minimum Efforts Thesis
Dilfraz Singh, Lovely Professional University

Unit 22: Critical Minimum Efforts Thesis Notes

CONTENTS
Objectives
Introduction
22.1 Theory of Balanced Growth
22.2 Explanation of Critical Minimum Effort Theory
22.3 Stimulants and Shocks
22.4 Critical Evaluation
22.5 Summary
22.6 Key-Words
22.7 Review Questions
22.8 Further Readings

Objectives

The objectives of this unit can be summarized as below:
• Be able to explain the balanced growth theories.
• Know about the terms stimulants and shocks.
• Know about critical evaluation.

Introduction

The theory of critical minimum effort is associated with the name of Harvey Leibenstein. The theory
is based on the relationship between the three factors, viz. (i) per capita income, (ii) population growth,
and (iii) investment.
Leibenstein identified population also an income-depressing factor (or a), whereas investment is an
income-generating factor.
Growth in an economy is possible when the income- generating factors turnout to be more powerful
than the income-depressing factors. A small additional investment may generate a small income. The
additional income would be eaten up by the additions to the population which may come in the
wake of the additional income, and hence the effort may fail to generals a cumulative process of
growth. What is required is an initial substantially large volume of investment that may create
conditions which should outweigh the growth of population, i.e., if necessary it is necessary that the
initial effort or the initial series of efforts must be above a certain minimum magnitude.
Suppose the level of per capita income is OA. This level is low as compares to the critical minimum
level it would fail to take the economy out of stagnation forced would be strong in relation to the
effect of income depressing forces would be strong in relation to the effect of income-generating
forces.When level of income is raised to OB, the growth curve will follow the path BCR. It is evident
that per capita income is rising up to point C, and thereafter the per capita income is declining.
It means, OB level of income is insufficient to generate the growth momentum in the economy.
If sufficient investment is infected into the system to raise per capita income to OM, sustained growth
will occur and effort of stimulants would be relatively strong than that of shocks. There, any level of
investment lower that the critical cannot ensure stained growth.
The term 'critical' is indicative it the fact that the investment should at least be of such a level which
could raise per capita income to OM for achieving sustained growth. However, it would be with

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