Cumulative causation Theory by Gunnar Myrdal 1956
Examine the concept and mechanisms involved in the cumulative causation process. June 2011.
The Swedish economist by name Gunnar Myrdal in 1956 formulated the cumulative causation theory which he attempts to explain regional inequalities of wealth. He argued the regional differences of wealth are the natural outcome of economist development and the most inevitable result of market forces. According to him no one region can prosper without affecting the prosperity of another.
Therefore according to Myrdal, the process of cumulative causation that brings economic development initially starts where there are such natural advantages as
- A source of Fuel (power)
- A supply of raw materials
- Human advantages such as, entrepreneurial abilities, technical knowhow
These abilities soon set in as the process of cumulative causation, whereby centripetal force (in war pulling) begin to operate attracting capita and labor into the expanding area. This further stimulates the prosperity of the area at the expense of the surrounding region. The process is circular and cumulative effect could be summarized as follow,
New economic activity call for an increase in employment and purchasing power which in turn increases demand for infrastructure, increase local market, increase in the possibilities in invention and
innovation which leads to increase new economic activity.
The multiplier effect
The process of cumulative causation involves the multiplier effect. This is Where the new and expanding economic activity in an area creates extra employment and raises the total purchasing power of the people. The extra population and greater purchasing power increases demand for infrastructure, or social amenities such as school, houses, roads, pipe borne water consumer goods and services, thus creating even more subsidiary industries which demand local goods and services which use their products or supply them with raw materials (primary industry).
Agglomeration economies and linkages. When industries increases they benefit from agglomeration economies whereby firms acquire servicing because they operate in the same location the make good use of auxiliary industries, financial servicing, and public utilities. agglomeration economies also exist where firms have linkages between them, where specialist labor force is developed, purchases made in bulk and easily marketed. This change reaction of goods from the multiplier effect to agglomeration economies producing a sustainable growth.
The spreading effect
With time the increase wealth in the more developed region would percolate downward to a less developed region. This downward percolation of wealth according to Myrdal is called the spread effect. This percolation of wealthy may consist of investments of capita and advance technology, decentralization of branch plants. In this ways the economies of the poor regions are stimulated and the process of cumulative causation trigger off in these regions.