cumulative causative theory of mydral and kaldor

1. [Year]
MYDRAL-KALDOR CUMULATIVE
CAUSATIVE THEORY

2. Mydral kaldor causative
Prof.Karl Gunnar Myrdal (6 December 1898 – 17 May 1987) was a Swedish Nobel
Laureate economist, sociologist, and politician. In 1974, he received the Nobel Memorial
Prize in Economic Sciences with Friedrich Hayek for "their pioneering work in the theory
of money and economic fluctuations and for their penetrating analysis of the
interdependence of economic, social and institutional phenomena." He is best known in the
United States for his study of race relations, which culminated in his book An American
Dilemma: The Negro Problem and Modern Democracy. The study was influential in the
1954 landmark U.S. Supreme Court Decision Brown v. Board of Education.
Nicholas Kaldor, Baron Kaldor ( (12 May 1908 – 30 September1986) was one of the
foremost 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 are
observable as far as economic growth is concerned, Kaldor's growth laws.
Mydral-Kaldor
Kaldor and Gunnar Myrdal worked to develop the key concept Circular Cumulative Causation, a multi
causal approach where the core variables and their linkages are delineated. Both Myrdal and Kaldor
examine circular relationships, where the interdependencies between factors are relatively strong, and where
variables interlink in the determination of major processes. Gunnar Myrdal got the concept from Knut
Wicksell and developed it alongside with Nicholas Kaldor when they worked together at the United Nations
Economic 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). It
was the “principle of cumulation” which emphasized the “vicious circle” between white people’s
discrimination toward black people and black people’s low standard of living. This theory was applied to the
problem of the increasing inequality observed between developed countries (welfare states, in his view) and
underdeveloped countries in the late 1950s.
 Prof.Mydral builds his theory of economic underdevelopment and development around the idea of regional
inequalities on the national and international planes.
 Mydral observes that in an underdeveloped economy,a process of circulation causation is sure to start.This
process 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 social
process than stable equilibrium analysis.

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 of
CC theory in general. Myrdal(1957) proposed a concept of “backwash effects” in order to explain the
increasing 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 from
outside.Thus,thelabourers become helpful that growing community,where they are brought but the situation
of the locality from which these labourersare brought,becomeunfavourable.
 In the poorer localities again ,fertility is higher and the diversion of population will lead to unfavourable
age 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 increased
demand for backward areas product, diffusion of technology and knowledge.
 The main cause of regional inequalities,according to mydral,has been the strong backwash effects and
weak spread effects in underdeveloped countries.
 Contrary to the first thesis, the second one is the logic of convergence. Although CC theory has its
importance in emphasizing a divergent process and it is admitted that Myrdal didn’t emphasized this
thesis as much as the first one, this thesis should be a crucial thought because this characterizes his CC
theory. 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 factors
Myrdal 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 implications
Although Myrdal’s CC theory admitted the potential possibility of convergence in the second thesis, he was too
pessimistic to think such possibility would come true naturally. He rather believed in policies to turn over the
economic forces composing the “vicious” circle. He showed the “equality” as his most important value
premiseand insisted the policies based on the “equality” will induce higher economic growth.
Myrdal’s CC theory can be
characterized in three points. The first
is that his CC theory is not a simple
logic of polarization process, because
it includes not only “backwash
effects” but also “spread effects”. The
second is that his CC theory is
supposed to consist of both
“economic” and “non-economic”
factors. The third is that his CC
theory exists as the theoretical
foundation of egalitarian policies.

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 the
macro-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 the
manufacturing sector and they are dynamic and macro-economic effects including “learning by doing” and
technological 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 relationship
between the production growth rate and the productivity growth rate. Furthermore, he insisted that the former
induced 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 sector
improves, the productivity growth rate will also improve according to Kaldor’s second law; however, it isn’t
supposed 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 labour
surplus in the non-manufacturing sector. By this law, the improvement of labour productivity in both sectors is
supposed 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 based
on international economies. They both made much of experimental data. The historical periods behind
their CC theories were very similar. Nevertheless, their CC theories are different in some important
points.
 First, Myrdal’s CC theory contained an important a pair of concepts: “backwash effects” and “spread
effects”. Kaldor didn’t have the counterpart of the latter. Although they both emphasized a divergent
process through CC theory, the logic differed.
 Secondly, Kaldor’s CC theory placed less emphasis on “institutional factors”. Because of the simplicity
and clearness of the model, Kaldor’s CC theory provoked many controversies and influenced many
economists. 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 an
historical 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 other
complicate factors concerning the problem.
 The final difference relates to the political implications. Myrdal emphasized “equality”as his most
important value premise and advocated egalitarian policies. He also showedN. FUJITA –280–an idealistic
vision of the “welfare world”.
 Kaldor had no such a methodology or vision. From a point of view of how a country can survive under
hard economic competition, he advocated export-led growth strategies.