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Lecture Development economics - Lecture 14: Leibenstein's Critical Minimum Effort

Harvey Leibenstein is of the view that UDCs are characterized by vicious circle of poverty (VCP) which keeps them around a low income per capita equilibrium state. The way out of this impasse is a certain 'Critical minimum effort' which would raise the per capita to a level at which sustained development could be maintained. | Theories of Economic Development - 4 Lecture 14 Leibenstein's Critical Minimum Effort Definition and Explanation: Harvey Leibenstein is of the view that UDCs are characterized by vicious circle of poverty (VCP) which keeps them around a low income per capita equilibrium state. The way out of this impasse is a certain 'Critical minimum effort' which would raise the per capita to a level at which sustained development could be maintained. In other words, a UDC will have to introduce 'Stimulus' in an amount which should be more than a critical level for the sake of change. Leibenstein says that every economy is subject to 'Shocks and Stimulants'. A shock has the impact of reducing the per capita income initially; while a stimulant tends to increase it. Explanation Certain countries are poor and backward because of the reason that the magnitude of stimulant is small while that of shocks is large. On the other hand, if income raising forces are more than income depressing forces the economy will be having critical minimum effort which will take the economy on the path of development. Growth Agents: According to Leibenstein, if the income increasing forces expand at a higher rate than the income depressing forces, then the favorable conditions for economic development will be existing. In the process of development such conditions are created by the expansion of 'Growth Agents'. These growth agents comprise of entrepreneurs, investors, savers and the innovators. The growth contributing activities result in creation of entrepreneurship, the increase in stock of knowledge, the expansion of production skills of people and increase in the rate of savings and investment. Leibenstein’s two types of incentives for UDCs: (i) Those incentives which do not increase national income, but they bring a change in the distribution of income. He calls them "Zero-Sum incentives". (ii) Those incentives which result in expansion of national income. He calls them . | Theories of Economic Development - 4 Lecture 14 Leibenstein's Critical Minimum Effort Definition and Explanation: Harvey Leibenstein is of the view that UDCs are characterized by vicious circle of poverty (VCP) which keeps them around a low income per capita equilibrium state. The way out of this impasse is a certain 'Critical minimum effort' which would raise the per capita to a level at which sustained development could be maintained. In other words, a UDC will have to introduce 'Stimulus' in an amount which should be more than a critical level for the sake of change. Leibenstein says that every economy is subject to 'Shocks and Stimulants'. A shock has the impact of reducing the per capita income initially; while a stimulant tends to increase it. Explanation Certain countries are poor and backward because of the reason that the magnitude of stimulant is small while that of shocks is large. On the other hand, if income raising forces are more than income depressing .