Information on the Kaldor’s model of economic growth
Kaldor’s model is based on the Keynesian tools of analysis and follows Harrod’s dynamic approach in regarding the rates of change in income and capital as the dependent variables of the system. But his model is quite different from the Harrodian and other models.
In Kaldor’s own words, “his model is a ‘piece of economics that tries to show that the ultimate causal factor was not saving or capital accumulation, but ‘technical dynamism’-the flow of new ideas and the readiness of the system to absorb them.”
Moreover, the model explains not only the steady growth path of the economy but also certain features of the growth process which are not explicitly dealt with by the other neo-classical model builders.
Again, the division of the model into two stages- constant population and expanding population-is an attempt to reconcile the Harrodian warranted and natural rates of growth by demonstrating the long-run tendency for the two to converge by mutual interaction.
The expanding population version of the model is particularly useful in demonstrating the effect of population growth on the growth of income in underdeveloped countries.
One of the highlights of Kaldor’s model is the introduction of the ‘technical progress function’ in place of the usual production function. The technical progress function relates technical progress to growth of productivity and capital accumulation, while the usual production function relates output per head to capital per head.
Thus, the former is superior to, the latter in that it brings in the role of income, wages, profits, capital, saving and investment.
Further, the technical progress function can be equally applied to an underdeveloped economy, having low capacity to absorb technical change due to the scarcities of capital and other resources.
However, with new discoveries and the increase in the capacity of such economies to absorb technical changes, the technical progress function may rise gradually. Thus Kaldor’s growth model is more realistic than the earlier neoclassical models because it is equally applicable to developed as well as underdeveloped economies.
Despite these virtues of the Kaldor model, it is not free from certain weaknesses’.
No Explanation of Determination of Growth Rate:
The Kaldor model does not explain the determination of the rate of growth of the economy, as has been explained in the Harrod-Domar models in terms of the volume of investment, saving- income ratio and the capital-output ratio.
No Reasons for Stability or Instability:
Unlike the Harrod-Domar models, this model does not give the reasons for stability or instability in the economic system. Rather, it analyses certain features of the growth process which emphasise ‘convergence and stability.’
Ignores Disembodied Technical Progress:
Kaldor has been criticised for ignoring the disembodied technical progress in his technical progress function. Kaldor defends himself by saying that it is mainly the rate of accumulation which governs the rate of technical progress. But in his growth model with Mirrlees, he admits that “in addition to ’embodied’ technical progress there is some ‘disembodied’ technical progress as well.”