A Centre-Periphery Framework on Kaldorian Lines
This paper develops the seminal ideas of Nicholas Kaldor into a Centre-Periphery framework of the world economy, where the Centre faces the problem of surplus capacity and effective demand and the Periphery faces a capacity constraint. In such a framework, a Harrod-type 'foreign trade multiplier' works in a short-run partial equilibrium analysis: a rise in the Periphery's output increases demand for output of the Centre. There is some ambiguity in the short-run effect of the peripheral terms of trade on the output of the Centre. In the long-run equilibrium growth of the whole framework, the 'foreign trade multiplier' does not work. A rise in factor productivity or the growth rate in the Periphery leads to a fall in its terms of trade while the Centre remains unaffected. A rise in the productivity in the Centre affects its factor income, not its terms of trade.
Volume (Year): 21 (2009)
Issue (Month): 3 ()
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