Question

Which theoretical assertions propound that countries grow fast and living standards rise when resources shift into industrial activities because manufacturing industry experiences considerable static and dynamic returns to scale:

• A. Kuznets Curve theory.
• B. Rostow's stage theory
• C. Kaldor's growth laws
• D. Amartya Sen's Capability Approach

Hint:

For economics questions, focus on the core mechanism described in each theory. Kaldor is linked to manufacturing-led growth, Kuznets to inequality, Rostow to stages, and Sen to human capabilities.

Answer 1

The Correct Option is C

Step 1: Understanding the Concept:
The question asks for an economic theory that links rapid economic growth to the shift of resources towards the manufacturing sector, specifically because this sector exhibits 'returns to scale' (i.e., efficiency increases as production scales up).

Step 2: Detailed Explanation:


Kaldor's growth laws, proposed by economist Nicholas Kaldor, are a set of three empirical regularities observed in economic growth. The first and most relevant law states that the growth of a country's GDP is positively related to the growth of its manufacturing sector. This is primarily because manufacturing is subject to significant economies of scale, both static (cost per unit falls as output increases) and dynamic (learning-by-doing, technological progress). This perfectly matches the premise of the question.
Kuznets Curve theory suggests that as an economy develops, market forces first increase and then decrease economic inequality, forming an inverted U-shaped curve. It relates growth to inequality, not the mechanism of manufacturing returns to scale.
Rostow's stage theory describes a sequence of five stages of economic development. While it includes an industrial "take-off" stage, it is a descriptive historical model rather than an analytical one focused on returns to scale as the core driver.
Amartya Sen's Capability Approach is a theory of human well-being and development. It argues that development should be seen as the expansion of human capabilities (freedoms to achieve desired functionings), rather than just economic growth.

Step 3: Final Answer:
The theory that directly connects rapid growth to the shift to manufacturing due to returns to scale is Kaldor's growth laws.