Development Strategies
Senior 6 · Economics
Development Strategies
Lesson 1 of 4
25 min
Imagine a rural district where many young people are underemployed on tiny farms. An investor opens a shoe factory and hires 500 of them. Will it succeed? The workers will spend their new wages on food, clothes, phones and transport, and very little on shoes, so the factory may not find enough buyers. Now imagine twenty factories opening at once, making shoes, soap, furniture, processed food and clothing. Each factory's workers become customers for the others.
The economist Paul Rosenstein-Rodan used this example in 1943 to argue for a "big push". Think: what would a poor district need in order to open twenty factories at once? And if it cannot, where should it start?
Definition
Development strategy: a planned, long-term approach by which a government chooses where to invest, what to produce and which policies to use in order to raise growth and living standards, for example the sequence in which sectors, skills and infrastructure are developed.
Rwanda's NST2 groups its own strategies under three pillars, economic transformation, social transformation and transformational governance, and the 2026–27 budget allocates 63%, 22% and 15% of spending to them (MINECOFIN, 11 June 2026).
Definition
Balanced growth: a strategy of investing in many complementary industries at the same time, so that each provides a market for the others. Big push: a large, coordinated wave of investment big enough to overcome indivisibilities and small markets.
Unbalanced growth: a strategy of investing deliberately in a few key sectors with strong linkages, so that the shortages and profits they create induce investment elsewhere.
Paul Rosenstein-Rodan ("Problems of Industrialisation of Eastern and South-Eastern Europe", Economic Journal, 1943) and Ragnar Nurkse (Problems of Capital Formation in Underdeveloped Countries, 1953) argued that a single investment fails in a poor economy because the market is too small: this is the demand side of Nurkse's vicious circle (Unit 5, lesson 4). Many complementary investments, including social overhead capital such as roads and power that no single firm would build, must come together.
Critique. Hans Singer and Albert Hirschman replied that a country able to invest on that scale on all fronts would not be underdeveloped: poor countries lack the capital, skills and administrative capacity. Balanced growth also ignores foreign trade (a firm can export instead of waiting for home demand), risks inflation and bottlenecks, and needs heavy central planning.
Albert Hirschman (The Strategy of Economic Development, 1958) argued that the scarce resource is decision-making, not capital. Investing in a few key sectors creates imbalances, shortages and profit opportunities that "induce" further investment. Priority should go to sectors with the strongest backward linkages (they buy many local inputs) and forward linkages (they supply many other firms). He also distinguished two sequences: building social overhead capital first, so that excess capacity attracts private firms, or building directly productive activities first, so that shortages force public investment in infrastructure.
Critique. Imbalances can become lasting bottlenecks, shortages and inflation rather than incentives; farming, which dominates poor economies, has weak linkages, so the strategy may neglect it; the choice of "key" sectors invites lobbying and mistakes; and it needs a government quick to respond to the pressures it creates.
Worked example
Worked example 1: choosing a key sector (illustrative figures)
A planner scores three industries on linkages: the share of inputs bought from local firms (backward) and the share of output sold to other firms rather than to consumers (forward). Which has the strongest total linkage?
| Industry | Backward linkage | Forward linkage | Total |
|---|---|---|---|
| Dairy processing | 0.60 | 0.20 | 0.80 |
| Cement | 0.45 | 0.85 | 1.30 |
| Phone assembly | 0.10 | 0.15 | 0.25 |
Cement has the strongest total linkage (1.30), because it buys local limestone and energy and is an input into construction. Dairy has the strongest backward linkage, to farmers, which matters if the aim is rural incomes. Phone assembly using imported parts has weak linkages: an enclave. Hirschman's rule favours cement; a planner focused on poverty might prefer dairy.
Definition
Lewis dual-sector model: W. Arthur Lewis's theory ("Economic Development with Unlimited Supplies of Labour", Manchester School, 1954) that a poor economy has a traditional sector with surplus labour and a modern capitalist sector, and that development is the transfer of labour from the first to the second as modern-sector profits are reinvested.
Because farming holds surplus labour (workers whose marginal product is close to zero), the modern sector can hire as many workers as it wants at a wage Wₘ just above subsistence income Wₛ: its labour supply is horizontal. With demand D₁ it employs L₁; the wage bill is the grey rectangle and profits the blue triangle. Capitalists reinvest the profits, the marginal product of labour rises, demand shifts to D₂ and D₃, and employment grows to L₂ and L₃ without any rise in wages. When surplus labour runs out, at the Lewis turning point, wages start to rise, and the economy is on its way to becoming fully modern.
Critique. Farm labour is not truly surplus at planting and harvest; profits may be spent on luxuries or sent abroad rather than reinvested; reinvestment may go into labour-saving machines, so employment grows slowly; many developing cities have open unemployment, not full employment at a fixed wage (Michael Todaro later explained why migration continues anyway); modern-sector wages are often pushed up by unions and minimum wages before surplus labour is gone; and the model neglects agriculture, whose productivity must rise to feed the towns.
Worked example
Worked example 2: how long until farm employment falls? (illustrative figures)
A labour force of 7.0 million grows by 2.5% a year. The modern sector employs 1.0 million and grows by 5% a year. The number of people in farming starts to fall only when the modern sector absorbs more than the whole increase in the labour force:
The modern share starts at and grows each year by the factor , so
Even fast modern-sector growth takes half a century to reduce the number of farmers when the labour force grows quickly. That is why raising farm productivity (Unit 6) cannot wait for industry to absorb everyone.
| Theory | Key idea | Policy implication | Main critique |
|---|---|---|---|
| Rostow, stages of growth (1960; Unit 5, lesson 3) | All countries pass through five stages; take-off needs investment above 10% of income and leading sectors | Raise saving and investment; build preconditions | Stages overlap; ignores external constraints; says what, not how |
| Rosenstein-Rodan and Nurkse, balanced growth (1943, 1953) | Complementary investments create each other's markets | A big push across many industries and infrastructure | Needs resources poor countries lack; ignores trade |
| Hirschman, unbalanced growth (1958) | Imbalances in key sectors induce further investment | Invest in sectors with the strongest linkages | Bottlenecks and inflation; neglects agriculture |
| Lewis, dual-sector model (1954) | Surplus farm labour moves to a modern sector that reinvests profits | Build modern industry; keep wages competitive | Labour not truly surplus; profits not always reinvested; urban unemployment |
Warning
Don't present these theories as rival recipes only. Hirschman accepted that some "push" is needed; Nurkse saw balance as a condition, not a fixed rule; Lewis assumed that farm productivity must rise too. A strong answer shows what each theory explains well and where it fails, then applies it to a named Rwandan sector.
Tip
One line per theory. Rostow: stages. Rosenstein-Rodan and Nurkse: everything at once. Hirschman: a few key sectors first. Lewis: move surplus labour to industry. Then learn one critique for each.
Important
Discuss. Is Rwanda's development closer to balanced or unbalanced growth? Consider its priority investments (airports, conference tourism, special economic zones, farming programmes) and decide which theory describes them best.
tutor2u, "Development Economics – What is the Lewis Turning Point?". A short explanation of the point at which surplus labour runs out. Compare it with the turning point marked on this lesson's diagram.
Practice
Sources and credits
Written by Ganzaa: the text, the Lewis diagram, the tables, the worked examples and the practice items. The district in the opening case, the linkage scores and the labour-force figures are illustrative.
