Estimation of the Social Product

Here we repeat that, in the under developed countries, there is likely ot be considerable divergence between the private and social product , especially in the case of building up the necessary infrastructure or the social and economic overheads. This divergence is due ultimately to external economies which in practical life are not easy to define and calculate. An investment creates external economies by increasing the demand for certain factors of production and products and thus making it possible for the existing units of production to turn out larger output. When completed, an investment helps to increase productivity in existing units by either increasing the supply of inputs or making possible new and more economical combinations of factors. Thus , there is expansion of output, as a result of an investment . Sometimes this expansion needs further investment . The divergence between the private and social product of the initial investment will appear only to the extend that here induced investments are actually undertaken.