Export-Led Growth, Regional Problems and Cumulative Causation

In this chapter we use the ideas of Kaldor, already introduced in Chapter 7, to consider the role of the Verdoorn relationship in a model of ‘circular and cumulative causation’. Kaldor was a longstanding critic of the application of neoclassical modes of thought to the analysis of economic growth and development. He supported Myrdal’s (1957) notion of vicious circles of success and failure (the principle of ‘cumulative causation’), and attacked the predictions of neoclassical theory that regional (national) growth rate differences would tend to narrow with trade and the free mobility of the factors of production. The essence of the argument is that once a region gains a growth advantage it will tend to sustain that advantage through the process of increasing returns that growth itself induces — the Verdoorn effect. Kaldor first articulated his theory in a purely verbal way in a lecture given to the Scottish Economic Society in 1970 (Ka’dor, 1970). We discussed the structure of the model in the previous chapter. Here we shall use the model to consider such questions as: the role of the Verdoorn effect in contributing to regional growth rate differences; whether regional growth rate differences will tend to narrow or diverge through time; and how policies of regional ‘devaluation’ can raise a region’s growth rate (if at all).