Cumulative Causation Theory : Gunnar
Myrdal
• Myrdal maintains that economic development
results in a circular causation process leading to
rapid development of developed countries while the
weaker countries tend to remain behind and poor.
• A change in one form of institution will lead to a
successive changes in other institutions. These
changes are circular in that they continue in a cycle,
many times in a negative way, in w/c there is no
end, and cumulative in that they persist in each
round gradually.
Con.
• Myrdal believes that international and interregional
economic relations in practice involve unequal
exchanges in the sense that the weak is always
exploited by the strong. He describes the backwash
effects of migration, capital movement and trade in
the backward regions.
• The main cause of backwardness and regional
disparities has been the strong backwash effect
(emanating from the centre of growth that
discourages growth in the other area) and weak
spread effects.
Cont.
• Developed region is developing at a faster rate at
the cost of backward region. Income earned by
developed region is not reinvested in backward
regions but is repatriated to the developed
sectors/regions leading to more development in
these areas.
• Spread effect continues to become stronger in
developed countries while backward effect
continued to become even more spread in backward
countries.
Cont.
• There was some spread effect from nodal regions to
the hinterland. The hinterland supplies raw material,
labour, etc. To the centres of development and in
turn receive consumer goods and services.
However, these spread effects never helped in self-
expansion process in rural areas.
Cont.
• Cumulative causation theory of economic development the
cumulative causation action has been built upon spread
effect and backwash effects.
• The theory emphasizes that “poverty is further perpetuated
by poverty” (bwe > spe) and “affluence is further promoted
by affluence” (spe>bwe).
• In backward regions problem creates more problems. In
developed regions auto solutions solve all problems.
Cont.
• Under such situations cause becomes its own effect.
• Conclusion: a region is backward because it is backward.
Cont.
• Myrdal contention is that the free play of market forces and
operation of profit motive in the capitalist system normally
tends to increase inequalities between regions rather than
decrease.
• When backwash effect dominates divergence will develop;
periphery will remain weak, only centre will develop and
dualism in growth is promoted.
• When spread effect dominates convergence will develop;
periphery will develop, there will be economic integration
between centre and periphery.
Critical evaluation
• This model combines national and international forces which
tend to keep backward countries in the morass of cumulative
process where poverty becomes its own cause.
• Though not a communist he proved that the so called
competitive markets instead of solving the problem of
backward region it would accentuate them.
• Myrdal was a supporter of balanced growth and wanted it to
be initiated, directed and sustained by govt.
A model of low level Equilibrium Trap
• The theory of Low Level Equilibrium Trap has been
developed by R.R. Nelson for underdeveloped countries.
• It states that when per capita income increases above the
minimum specific level, population tends to increase.
• But when the growth rate reaches an upper physical limit
as the per capita income increases, the growth starts
declining.
Cont.
• The problem of underdeveloped economies can be diagnosed as
a stable equilibrium level of per capita income at or close to
subsistence requirements. At this stable equilibrium level of per
capita income, both rate of investment and saving are low.
• If the per capita income is increased above the specific level
through saving and investment, it increases a growth in
population. The increase in population growth as a result
pushes down per capita income to its stable level of
equilibrium. Thus, the economy is caught in a low level
equilibrium trap.
• To come from this trap, the rate of increase of growth of
income must be higher than the rate of increase in population.
Cont.
• Ways of escaping; favourable socio-economic
env’t, encourage entrepreneurship, reduce family
size, increase capital accumulation, good
governance, efficient use of resources, and others.
• To conclude the discussion, if the growth rate of
income is increased more than growth rate of
population, then only low level of equilibrium trap
can be escaped. Once this is achieved above a
certain per capita income level, the continuous
growth process will take place without any further
government action until a high level of per capita
income is attained.
Kremer’s O-Ring Model
• The theory is a model of economic development put forward by
Michael Kremer in 1993, which proposes that tasks of
production must be executed proficiently together in order for
any of them to be of high value.
• The key feature of this model is positive assortative matching,
whereby people with similar skill levels work together.
• This model helps explain brain drain and
international economic disparity. As Kremer puts it, "If strategic
complementarity is sufficiently strong, microeconomically
identical nations or groups within nations could settle into
equilibria with different levels of human capital"
Cont..
• The theory explains why rich countries produce more complicated
products, have larger firms and much higher worker productivity
than poor countries.
Rich countries simply have more resources so their companies are
bound to be more productive – or have higher levels of output per
worker.
Effects across firms (bad inputs from suppliers provide no incentive
to upgrade) can create national low-production quality traps.
Over time, the performance of a given player will improve if he is
surrounded by high quality teammates (i.e. those who are more
likely to complete their task successfully) and vice versa.
etc
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The End!!!!!
