Cumulative Causation Theory by Gunnar Myrdal

The inception of process of regional development has remained a mystery for most of the development economists. Perroux and Boudeville’s have given their ideas regarding regional development in form of Growth Pole Theory. Similarly, Gunnar Myrdal also gave his cumulative causation theory for explaining the process of regional development.

In Simple Words

Gunnar Myrdal was a political economist at Stockholm University. He aimed to understand the distribution of benefits of economic growth on different section of society. Myrdal argued that the process of economic growth is unbalanced. This means that economic growth does not take place evenly across a geographic space. It is concentrated on certain favorable locations. During the process of economic development, rich people and rich regions continue to grow richer while the poor ones become more poor. The rich countries and regions collaborate to keep the terms of trade in their favor. Hence, rich gets higher income while poor sell their goods and services for low price.

Composition of Economic Space

To explain his theory, Myrdal elaborated that the economic space or a region contains two primary zones i.e. a core and its periphery.

• Core: Core is a developed area where economic growth started initially due to some natural advantages. The core contains most of the economic activities of a region. Core is usually a large city. On global scale, the core refers to the developed countries.
• Periphery or Hinterland: The area surrounding core is called periphery or hinterland. Periphery is an underdeveloped area which provides milk, vegetables, food, raw materials, minerals and labor to the core. On global scale, periphery refers to the underdeveloped region or countries of the world.

From above discussion, we understood the composition of a region. Now, let us understand the meaning of cumulative causation.

Cumulative Causation

Cumulative causation is a process where a result of an action (stimuli) leads to increase in the intensity and speed of initial action or stimulus. Let us disaggregate this concept through an example.

• Stimuli: For instance, if someone makes investment in Delhi, it will lead to increase in economy activity. Here investment is stimulus or stimuli.
• Result: The increase in economic activity due to stimuli will lead to production, sale and ultimately, profit. Here, the result is profit.
• Cumulation: The investor will invest the profit along with his initial investment again in Delhi which will further increase the economic activity. This process keeps on repeating itself and size of economy continues to grow. This process of increase in the size of economy due to reinvestment of profits in the economy is called cumulation.
• Circular Pattern: The path of investment and profit is circular and progressively push each other (see Fig.1).

  

Agglomeration Effect

The process of cumulative causation leads to agglomeration of large number of economic activities in the core. This area also becomes the center of social, cultural and political activities. The old and new businesses start to operate from the core. It becomes the center of skilled labor, communication network, research and development etc. The agglomeration takes place due to internal and external economies.

• • Internal Economies: This profit or benefit which accrue to a single firm which has initiated some innovation in its business.  Internal economies are generally a result of high research and development activities in a core.
  • External economies: These profits or benefits accrue to all those firms which operate in a core. These benefits include availability of cheap skilled labor, updated machinery, source of power, source of investment, a large market etc. in the large city.

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.

The Spread Effect

• The spread effect refers to the transmission of goods and services from the core towards the periphery/ hinterland.
• The goods and services may include new technology, high end wage labor, modern inputs for agricultural, small factories, health services, educational services etc.
• The spread effect induces growth and development in the periphery.

The Backwash Effect

• The backwash effect refers to the transmission of goods and services from the periphery/ hinterland towards the core.
• These goods and services may include, agricultural products, mineral resources, labor force etc.
• The backwash effect may be positive or negative for the growth of hinterland.

Myrdal argues that the terms of exchange of goods and services are not in favor of periphery. Therefore, the goods and services provided by the core to the periphery are always costlier than the goods and services supplied by periphery to the core. Hence, there is a net flow of resources towards the core. This process leads to increase in the wealth of core whereas the periphery continues to grow poorer. The paths of growth of core and the periphery continue to diverge.

One may ask, “why does the terms of trade are in the favor of the core?” The term of trade are kept in the favor of core or large cities by the government policies. Since, the core produces high end industrial goods and services, the investors seeks low cost and high price. Keeping the wages of laborers at a lower level is one of the examples of reducing cost. The entrepreneurs pay low wages to laborers while the policy makers ensure that the food price remain low so that the laborers are able to survive on the low wages. The ultimate loss goes to the food producers of the periphery.

Assessment of Cumulative Causation Theory

In short, Myrdal did not believe in convergence of income levels of the rich and the poor. He asserted that once economic growth starts at a place (core), the core continue to grow at the cost of the surrounding area. This leads to high level of disparity between the core and its surrounding areas. Hence, the policy makers should focus on balanced regional development.

• Myrdal supported government sponsored balanced economic growth which has proved to be a failure in most countries of the world. He argues that markets’ only aim is profit and it does not ensure distributive justice.
• This theory puts too much pressure on structural control of rich over the poor. Hence, it sounds like a theological theory where the destiny of the poor regions is already determined.
• Myrdal ignores the endeavor of the individual leaders in changing the course of regional growth, totally.
• His ideas were criticized by Albert Hirschman in his Theory of Economic Transmission.
• Hirschman argued that certain places are naturally resourceful whereas some places are resource scarce. Therefore, it is inevitable that the growth will take place at fewer places. Hence, the process of growth is intrinsically unbalanced.

Conclusion

Regardless of all the criticism, one can observe that there is a large disparity between the large cities and the rural areas. Similarly, there is regional disparity within developing countries like India. For example, Bihar is far behind Maharashtra in terms of per-capital income. So, this theory has certain truth to itself. Therefore, Myrdal’s theory is a leap forward in locational analysis and for achieving regional equity.