Gunnar Myrdal's Cumulative Causation Theory

The regional development process has been a subject of keen interest and debate among development economists. Perroux and Boudeville's Growth Pole Theory and Gunnar Myrdal's Cumulative Causation Theory represent two influential approaches to understanding regional development, each offering unique perspectives and insights. While Gunnar Myrdal didn't propose a formal Growth Centre Model, his theories on uneven development ("cumulative causation") and growth poles profoundly impacted its formation.

Karl Gunnar Myrdal was a Swedish economist and sociologist born on December 6, 1898. After graduating from Stockholm University Law School in 1923, he pursued advanced studies, earning a doctorate in economics in 1927. Myrdal's contributions to economics were recognized with the Nobel Prize in 1974 for his pioneering work in economic theory and his analysis of the interdependence between economic, social, and institutional phenomena. In 1957, Myrdal introduced the Circular and Cumulative Causation theory. This model is a hypothesis of geographical dualism, explaining persistent spatial inequalities in economic development both between and within nations. It directly challenges the different classical economic theories, particularly the belief that international trade fosters equalizing effects.

 

} KEY POINTS

1.        Uneven Growth: Economic growth concentrates in favorable areas, creating spatial disparities and widening gaps between regions.

2.        Growing Inequality: Development benefits the wealthy disproportionately, making the rich richer and the poor relatively poorer.

3.        Trade Imbalance: Rich countries maintain favorable trade terms, benefiting more from global commerce than poorer nations.

4.        Income Gaps: Wealthy regions enjoy higher incomes, while poorer areas struggle, deepening social and economic inequalities.

 

 CORE PRINCIPLES OF MYRDAL’S THEORY

 

CORE AND PERIPHERY:

 

µ       Core: This division highlights the uneven distribution of economic development within a region. The core, typically a large city or developed country, enjoys a concentration of economic activity, infrastructure, and resources.

µ       Periphery or Hinterland: The periphery, on the other hand, is the less developed surrounding area. It often acts as a supplier of raw materials, labor, and food to the core.

 

Cumulative Causation and Core-Periphery Dynamics: Myrdal's theory explains how this core-periphery structure can become self-reinforcing. The initial advantages of the core attract further investment, businesses, and skilled labor, accelerating its growth. Conversely, the lack of resources in the periphery makes it difficult for them to attract investment or develop their economies. This creates a downward spiral, where the core continues to prosper while the periphery lags behind.

Examples: In a country, a large city might be the core, attracting businesses and investment due to its infrastructure and skilled workforce. The surrounding rural areas (periphery) might provide raw materials and labor to the city but struggle to develop their own industries. Global Context: Myrdal's concept can also be applied on a global scale. Developed countries act as the core, with strong economies and technological advancements. Less developed countries form the periphery, often supplying resources and raw materials.

 

CUMULATIVE CAUSATION

 

The concept of cumulative causation demonstrates how an initial stimulus, such as investment in a particular region like Delhi, can lead to a self-reinforcing process of economic growth. Let's break down the components of cumulative causation as demonstrated in your example:

1.       Stimulus: The initial action or stimuli in your example is an investment in Delhi. This investment serves as the catalyst for economic activity in the region.

2.       Result: As a result of the investment, economic activity in Delhi has increased. This could involve various activities such as production, trade, and consumption, ultimately leading to profits for businesses operating in the region.

3.       Cumulation: The profits generated from the initial investment are reinvested back into the economy of Delhi. This reinvestment further stimulates economic activity, leading to additional production, sales, and profits. As this process repeats itself, the size of the economy grows continuously.

4.       Circular Pattern: The path of investment and profit forms a circular pattern, where each round of investment leads to further economic activity, generating more profits that are then reinvested back into the economy. This circular flow progressively reinforces itself, leading to sustained growth in the region.

Fig: Mydral's analysis of Cumulative Causation

 

Agglomeration and Core Development:

 

As a result of cumulative causation, the core region experiences a snowball effect of economic activity. This is known as agglomeration. Multiple factors contribute to this:

µ      Internal Economies: These are cost advantages enjoyed by individual firms located in the core. High R&D activity, as you mentioned, can lead to innovation and efficiency gains for a single company.

µ      External Economies: These are benefits enjoyed by all firms in the core, not just individual companies. They include:

Ø      Availability of skilled labor: A large pool of skilled workers attracts businesses to the core.

Ø      Developed infrastructure: The core typically has better transportation, communication networks, and utilities.

Ø      Access to suppliers and markets: Businesses in the core benefit from close proximity to suppliers and a large customer base.

Ø      Knowledge Spillovers: Ideas and innovations can easily spread between businesses in close proximity, fostering a more dynamic environment.

Social, Cultural, and Political Hub: As the economic center, the core also becomes a hub for social, cultural, and political activities. This attracts even more people and businesses, further solidifying its dominance.

A Cycle that Feeds Itself: The agglomeration of economic activity attracts more people to the core. This, in turn, increases the demand for goods and services, leading to further economic growth. It's a self-reinforcing cycle.

Policy Considerations: While agglomeration offers benefits, it can also lead to regional inequalities. Policymakers need to consider strategies to promote development in lagging regions and mitigate negative effects like congestion and high living costs in core areas.

 

Transmission between Core and Periphery

 

The exchange of goods and services between core and periphery takes place through two types of effects i.e. the spread effect and the backwash effect.

SPREAD EFFECT: This is the positive side of the relationship. The core's development can "spill over" to the periphery through:

o        Technology transfer: New technologies and innovations developed in the core can be adopted by businesses in the periphery, leading to improved productivity.

o        Skilled labor migration: Some skilled workers from the core may move to the periphery, offering their expertise and boosting local development.

o        Investment: Businesses in the core might invest in the periphery, setting up branches or creating partnerships.

o        Improved infrastructure: Infrastructure development projects in the core might extend to the periphery, improving connectivity and access to markets.

BACKWASH EFFECT: This is the negative side of the relationship. The core's dominance can have negative impacts on the periphery:

o        Resource depletion: The core might exploit the periphery's resources like raw materials and labor, leading to depletion and environmental damage.

o        De-industrialization: Cheap imports from the core might force some small businesses in the periphery to shut down.

o        Brain drain: Skilled labor from the periphery might be attracted to higher wages in the core, hindering local development.

 

 KEY FEATURES OF THE MODEL

 

1. Persistence of Inequality: Myrdal’s observations reveal that global disparities between rich and poor countries are growing rather than shrinking. Wealthy regions utilize internal and external economies of scale, while poor regions lose resources.
2. Vicious and Virtuous Cycles: Underdeveloped regions are trapped in vicious cycles where poverty perpetuates itself. Developed regions experience virtuous cycles, attracting labor, capital, and entrepreneurship.
3. Role of Institutions and Policies: Myrdal rejected the idea of a self-stabilizing socio-economic system. He advocated for government intervention to address inequalities, promote balanced growth, and counteract the negative impacts of free markets.

 

 ASSESSMENT OF CUMULATIVE CAUSATION THEORY

 

Myrdal's View on Convergence: Myrdal was skeptical of automatic convergence of incomes between rich and poor regions. He argued that unchecked market forces could exacerbate existing inequalities.

Core-Periphery Dynamics: The theory highlights the risk of core regions becoming increasingly prosperous while peripheries fall further behind. This creates a need for policies to promote balanced development.

Government Intervention: Myrdal advocated for government intervention to bridge the gap between the core and periphery. This could involve infrastructure investment, skills development programs, or policies to ensure fair trade practices.

Limitations and Criticisms: The theory has been criticized for:

• Overemphasis on government intervention: Some argue that market forces can also play a role in promoting development.
• Limited scope: The theory may not fully account for factors like resource endowments that can influence regional development.
• Neglecting individual agency: Myrdal's focus on structural factors might downplay the role of individual leadership and initiative in driving regional growth.

Hirschman's Counterpoint:

• Albert Hirschman, another development economist, argued that unbalanced growth is somewhat inevitable due to variations in resource availability and geographical advantages.
• Growth might initially concentrate in a few places, but the benefits could eventually "trickle down" to other regions over time.

Overall Assessment: Myrdal's theory offers valuable insights into the challenges of regional development. While some aspects have been contested, it remains a relevant framework for understanding core-periphery dynamics and the need for proactive policies to promote balanced growth. Additional Considerations:

• The success of government intervention depends on factors like effective implementation and avoiding corruption.
• Technological advancements and globalization can create new opportunities for peripheral regions to develop.

 

Conclusion: Despite facing criticism, Gunnar Myrdal's Cumulative Causation Theory remains pertinent in understanding the substantial disparities between urban centers and rural areas, as well as within developing countries such as India. This reality is evident in the significant gap between regions like Bihar and Maharashtra in terms of per capita income. Myrdal's theory provides valuable insights into the mechanisms underlying regional development and the perpetuation of inequalities. By highlighting the self-reinforcing nature of economic growth in core areas at the expense of surrounding regions, Myrdal's theory underscores the importance of addressing regional disparities and promoting regional equity. Thus, despite its limitations, Myrdal's theory represents a significant advancement in locational analysis and offers valuable guidance for policymakers striving to achieve more balanced and equitable regional development.