Economia Politica. Rivista di teoria e analisi Economia Politica. Rivista di teoria e analisi
Non-Technical Abstract
The exploration of the links between productive specialisation, technological innovation and growth in an open economic system has been constantly, and often passionately, pursued, since the very beginning of modern economic thought. One of the controversial issues in the “great debates” between free traders and protectionists, convergence and cumulative causation theorists, paladins of a world laissez faire and proponents of a new economic order and, more recently, between endogenous growth theorists, is if and how economic growth is dependent on productive specialisation and, should that be the case, if and how the latter could be enhanced or modified through innovation.
The neo-classical tradition in growth theory and the heterogeneous evolutionary universe propose different answers to the “if and how questions” starting from a similar micro-supply side perspective; this paper focuses, instead, on a third research program, originated from the ideas of Nicholas Kaldor (1966, 1967, 1970, 1981) concerning the causes of growth rate differences between economic regions. Such a research program, which I shall call for the sake of simplicity the Post-Keynesian theory of growth differentials, is characterised by a macro perspective and by the crucial role of supply and demand, both contributing to the determination of the long run rate of growth. The main goal of the paper is to highlight the founding elements of this research program, and to set out a formal model where specialisation and innovation, on the one side, and the propulsive role of demand, on the other, determine the rate of growth of an open economy bounded by its international economic relations.
The model used is characterised by cumulative causation due to Verdoorn law ; static and dynamic economies of scale ; mark-up pricing ; balance of payments constrained growth. We add to these kaldorian elements the role of technology, in particular the role of learning by doing.
The model describes an aggregate economic system where the domestic economy, E1, exchanges goods and services with the rest of the world. The chain through which growth take place starts from an exogenuos change in exports, driven by world demand. The original stimulus on production, that expands in the system via prices and productivity, modifies positively the rate of growth that converges to a long run stable equilibrium consistent with the balance of payments constraint.
Numerical simulations show that : (a) as in Thirlwall (1979), if the long run rate of growth is untouched by price or exchange rate policies and depends exclusively on the trade effects of productive specialisation, the growth rate is influenced positively by the rate of growth of exports and negatively by the income elasticity of imports ; (b) specialisation in the production of traditional goods, characterised by lower economies of scale and lower value of Verdoorn's coefficient, will negatively affects the rate of growth ; (c) a difference in the process of knowledge accumulation or in the economic relevance of such a process may induce the trajectories of the rates of growth of two different economies, E1 and E2, to diverge ; (d) if E1 is specialised in traditional productions characterised by higher price elasticity of exports this will imply that, if the situation were to remain unchanged, specialisation in modern industrial production would condemn E2 to a lower rate of growth compatible with balance of payments equilibrium. Internalisation, through innovation, of the externalities originated by the learning process allows to overcome initial conditions in the long run. If E2 has a greater capability to exploit the benefits of learning, then catching-up occurs. The rate of growth in E2 converges towards the rate of growth in E1 and will surpass it, reaching a higher asymptotically stable long run equilibrium. The choice of specialising in the modern sector would be disadvantageous in the short run but not in the long run.
References
Kaldor N. (1966), Causes of the Slow Rate of the Economic Growth
of the United Kingdom, Cambridge, Cambridge University Press.
Kaldor N. (1967), Strategic Factors in Economic Development, New
York, Itacha.
Kaldor N. (1970), The Case for Regional Policies, Scottish
Journal of Political Economy, November.
Kaldor N. (1981), The role of Increasing Returns, Technical
Progress and Cumulative Causation in the Theory of International Trade
and Economic Growth, Economie Appliquée, vol.34, n.4, pp.593-617.
Thirlwall A.P. (1979), The Balance of Payments Constraint as an
Explanation of International Growth Rate Differences, Banca Nazionale
del Lavoro Quarterly Review, vol.32, n.128, pp.45-53.
LUCA DE BENEDICTIS is researcher in economics at the Università degli Studi di Macerata, Dipartimento di Istituzioni Economiche e Finanziarie, Via Crescimbeni 14, 62100 Macerata.
debene@unimc.it
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