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Mydral kaldor cunulative causative Theory


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cumulative causative theory of mydral and kaldor

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Mydral kaldor cunulative causative Theory

  2. 2. Mydral kaldor causativeProf.Karl Gunnar Myrdal (6 December 1898 – 17 May 1987) was a Swedish NobelLaureate economist, sociologist, and politician. In 1974, he received the Nobel MemorialPrize in Economic Sciences with Friedrich Hayek for "their pioneering work in the theoryof money and economic fluctuations and for their penetrating analysis of theinterdependence of economic, social and institutional phenomena." He is best known in theUnited States for his study of race relations, which culminated in his book An AmericanDilemma: The Negro Problem and Modern Democracy. The study was influential in the1954 landmark U.S. Supreme Court Decision Brown v. Board of Education.Nicholas Kaldor, Baron Kaldor ( (12 May 1908 – 30 September1986) was one of theforemost Cambridge economists in the post-war period. He developed the famous"compensation" criteria called Kaldor–Hicks efficiencyfor welfare comparisons (1939),derived the famous cobweb model and argued that there were certain regularities that areobservable as far as economic growth is concerned, Kaldors growth laws.Mydral-KaldorKaldor and Gunnar Myrdal worked to develop the key concept Circular Cumulative Causation, a multicausal approach where the core variables and their linkages are delineated. Both Myrdal and Kaldorexamine circular relationships, where the interdependencies between factors are relatively strong, and wherevariables interlink in the determination of major processes. Gunnar Myrdal got the concept from KnutWicksell and developed it alongside with Nicholas Kaldor when they worked together at the United NationsEconomic Commission for Europe.Mydral Circular Cumulative Causation (CC) Theory Myrdal’s theory of cumulative causation was first shown in of American Dilemma (first published in 1944). Itwas the “principle of cumulation” which emphasized the “vicious circle” between white people’sdiscrimination toward black people and black people’s low standard of living. This theory was applied to theproblem of the increasing inequality observed between developed countries (welfare states, in his view) andunderdeveloped countries in the late 1950s. Prof.Mydral builds his theory of economic underdevelopment and development around the idea of regionalinequalities on the national and international planes. Mydral observes that in an underdeveloped economy,a process of circulation causation is sure to start.Thisprocess will have some effects which will cumulative in the fashion that is similar to vicious circle idea. Infact, circulation causation provides a more rational explanation for the theoretical analysis of a socialprocess than stable equilibrium analysis.
  3. 3. Myrdal’s CC theory consists of four theses as follows.1. The basic thesis: the thesis of “backwash effects” Myrdal’s CC theory has emphasized a divergent process. Such a process is well known as a typical logic ofCC theory in general. Myrdal(1957) proposed a concept of “backwash effects” in order to explain theincreasing economic inequality between developed countries and underdeveloped countries. Backwash effects mean unfavourable effects. The cumulative movements which tend to economically weaken region were termed backwash effects.Those caused by labor migration, capital movements, and trade. These factors become favourable in a locality requires skill and efficient labourers.Who are brought fromoutside.Thus,thelabourers become helpful that growing community,where they are brought but the situationof the locality from which these labourersare brought,becomeunfavourable. In the poorer localities again ,fertility is higher and the diversion of population will lead to unfavourableage distribution.similarily ,capital movements will also increase regional inequlities.2. The opposite or exceptional thesis: the thesis of “spread effects” Myrdal also argues the spread effect or positive externalities,it refer to certain centrifugal “spread effects”of expansionary momentum from centres of economic expansion to other regions. such as increaseddemand for backward areas product, diffusion of technology and knowledge. The main cause of regional inequalities,according to mydral,has been the strong backwash effects andweak spread effects in underdeveloped countries. Contrary to the first thesis, the second one is the logic of convergence. Although CC theory has itsimportance in emphasizing a divergent process and it is admitted that Myrdal didn’t emphasized thisthesis as much as the first one, this thesis should be a crucial thought because this characterizes his CCtheory. Myrdal’s CC theory doesn’t deny the potential possibility of a convergent process.3. The thesis relating to the scope of the analysis: the thesis of the importance of institutional factorsMyrdal insists that if so-called “non-economic” factors are excluded from the analysis,it will result in distorting the recognition of the facts. According to him, it is whether it is related to the problem,not whether it is an “economic factor”, that decides whether the factor should be included in the analysis.4. The thesis of political implicationsAlthough Myrdal’s CC theory admitted the potential possibility of convergence in the second thesis, he was toopessimistic to think such possibility would come true naturally. He rather believed in policies to turn over theeconomic forces composing the “vicious” circle. He showed the “equality” as his most important valuepremiseand insisted the policies based on the “equality” will induce higher economic growth.Myrdal’s CC theory can becharacterized in three points. The firstis that his CC theory is not a simplelogic of polarization process, becauseit includes not only “backwasheffects” but also “spread effects”. Thesecond is that his CC theory issupposed to consist of both“economic” and “non-economic”factors. The third is that his CCtheory exists as the theoreticalfoundation of egalitarian policies.
  4. 4. Kaldor cumulative causative Theory.Kaldor’s CC theory consists of three or four Kaldor’s Laws which was presented in Kaldor (1966).According to Kaldor (1966), he discussed the effects of increasing returns in the manufacturing sector to themacro-economic dynamics.Kaldor’s first law is that the growth rate of the manufacturing production positively relates to that of GDP.Kaldor insists that the former leads the latter. According to him, increasing returns are prevailing in themanufacturing sector and they are dynamic and macro-economic effects including “learning by doing” andtechnological innovations.Kaldor’s second law is that increasing returns are prevailing especially in the manufacturing sector. It is called“Kaldor-Verdoorn’s Law”, which is originated in Verdoorn (1949). Kaldor showed it as a dynamic relationshipbetween the production growth rate and the productivity growth rate. Furthermore, he insisted that the formerinduced the latter and only such causality should be understood as increasing returns.Kaldor’s third law focuses on the employment. If the production growth rate in the manufacturing sectorimproves, the productivity growth rate will also improve according to Kaldor’s second law; however, it isn’tsupposed to decrease the employment. Kaldor insisted the labour transfer from the non-manufacturing(agricultural) sector to the manufacturing sector. The important proposition of this law is the existence of laboursurplus in the non-manufacturing sector. By this law, the improvement of labour productivity in both sectors issupposed to occur.Comparsion of Mydral and Kaldor cumulative causative theory Myrdal’s CC theory and Kaldor’s CC theory share some similarities. Their analyses were mainly basedon international economies. They both made much of experimental data. The historical periods behindtheir CC theories were very similar. Nevertheless, their CC theories are different in some importantpoints. First, Myrdal’s CC theory contained an important a pair of concepts: “backwash effects” and “spreadeffects”. Kaldor didn’t have the counterpart of the latter. Although they both emphasized a divergentprocess through CC theory, the logic differed. Secondly, Kaldor’s CC theory placed less emphasis on “institutional factors”. Because of the simplicityand clearness of the model, Kaldor’s CC theory provoked many controversies and influenced manyeconomists. In this sense, there is no doubt that Kaldor’s CC theory had a greater impact than Myrdal’s. However, Kaldor’s CC theory might have anhistorical or regional constraint because his focus was on industrial activities especially in the UK.Myrdal’s CC theory didn’t have any clear “model”. He rather emphasized cultural differences and othercomplicate factors concerning the problem. The final difference relates to the political implications. Myrdal emphasized “equality”as his mostimportant value premise and advocated egalitarian policies. He also showedN. FUJITA –280–an idealisticvision of the “welfare world”. Kaldor had no such a methodology or vision. From a point of view of how a country can survive underhard economic competition, he advocated export-led growth strategies.