Growth pole theory by Perroux ~ Civil Services Self Study ( NCERT Based)

French regional economist, Perroux gave the idea of economic growth poles in the 1950s. He tried to explain the modern process of economic growth based on the Schupeters theory and the role of innovation & large-scale firms.
Before discussing Perroux theory, one first needs to understand the basic terminology used in the model:

Basic terminologies

Firms:

The firm is an organization involved in trading goods and services. For example, Flipkart, Amazon, Walmart, TATA Consultancy, Wipro, etc.

Industry:

The industry is an organization involved in the manufacturing of goods. For Example, the Steel industry, Iron ore industry, coal industry, sugar industry, etc.
Firms or industries can be two types as per Perroux:

Dominant industry/ Firms
Dynamic propulsive firm/industry

Dominant industry:
If industry A is dominant over B then the flow of goods or services or both from A to B will be greater than A's output than B's output. For example, the iron ore industry or coal industry will be the dominant industry over the steel industry; a larger proportion of the iron ore industry or coal industry will be consumed by the steel industry.

They can dominate the economic environment because of their:

Negotiating strength
Nature of operations
Their innovative skill
Impression and brand values

Dynamic Propulsive Firms:
If the firm has high degrees of interaction with others with a highly advanced level of technology and expertise. The firms are fast-growing and have advanced in technology and the ability to innovate. For Example, Walmart, Flipkart, and Automobile industries.

Perroux 's Growth Pole:

As per Perroux, growth poles do not mean geographical areas such as cities, or towns. Growth poles may be single firms or industries or groups of industries. Generally, the growth pole is an economic space where a large number of economic activities happen.

Economic polarization:

Division of opposite economic activities and agglomeration of similar types of activities into one location.

External economics:

External economics exist if a change in the output of a particular firm or industry affects the cost of other firms or industries. It can be:
Negative external economy:
The polluting industry costs the other industries. The coal industry is a negative external economy in the sugar industry.
Positive external industry:
The development of one industry helps to grow another industry is called a positive industry. For example, the development of the Robots industry helps to grow many industries, hospitals, etc.

Linkage;

Production or services of one industry or firm is linked with other industries or firms. the linkage can be forward or backward linkage.

Forward linkage:
forward linkage of the Steel industry is the automobile and construction industry. The forward linkage of the iron ore and coke industry is the steel industry.

Backward linkage;
The backward linkage of the steel industry is the iron ore and coal industry. The backward linkage of the automobile industry is the steel industry.

Schumpeter's' theory.

As per Schumpeter's theory, innovation and technology development is key to any industry, and they always try to maximize profit through research, innovation, and technological advancement.

Growth pole theory by Perroux:

The central idea of the growth pole theory is that economic development or growth does not happen uniformly in the entire region, first, it starts in a specific pole/cluster and then diffusion of this growth happens around the pole.

Perroux's growth pole theory is based on Schumpeter's' theory and it is shown in the diagram.

growth pole

The place where propulsive or dominant industries are located that region becomes the pole of the region, and due to spread out effect or trickle-down effect development gets spread around the pole. The polarization of economic activities around the pole happened because of external economics.

Limitation of Perroux Growth Pole Theory

Dynamic propulsive firms are normally found in Capitalist countries.
Perroux economic polarization was unnecessarily transferred to geographical polarization.
Geographical polarization generally happens in underdeveloped countries.

Try to solve the following questions:

Write a note on "forward and backward linkages" in Perroux's thesis of economic growth and regional development. (UPSC 2018, 150 words, 10 marks)

Civil Services Self Study ( NCERT Based)

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