The New Palgrave Dictionary of Economics Online

‘Balanced growth’ has at least two different meanings in economics. In macroeconomics, balanced growth occurs when output and the capital stock grow at the same rate. This growth path can rationalize the long-run stability of real interest rates, but its existence requires strong assumptions. In development economics, balanced growth refers to the simultaneous, coordinated expansion of several sectors. The usual arguments for this development strategy rely on scale economies, so that the productivity and profitability of individual firms may depend on market size. The article reviews the balanced growth debate and the extent to which it has influenced development policies.