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Myrdal Cumulative Causation Theory

Geography (University of Delhi)

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MYRDAL CUMULATIVE CAUSATION THOERY:

Karl Gunnar Myrdal, a Swedish economist and sociologist gave the Circular and Cumulative
Causation theory in 1957. Basically his model is a hypothesis of geographical dualism,
applicable to nations and regions within nations, which attempts to account for the
persistence of spatial differences in eco dev both between nations and regions within nations.

determinants of
regional growth

endogenous forces exogenous forces

operate from outside

operate from within the
region- distribution of the region- level of
factors of production demand for a region's
such as land, labour and commodities fromother
capital areas

It rejects the assumption of automatic tendency of socio-economic system towards

stabilization and holds that a change does not create opposite reaction but other
changes which emphasize it . When analyzing the socio-economic development at
a global level, this theory is based, according to Blazek (2008) on three facts:

1. there is a small group of wealthy countries and many more extremely poor
countries,
2. wealthy countries continues to grow while poor states stagnate (here Myrdal
notices the paradoxical fact that the stagnating countries are termed
developing countries - the countries which are developing),
3. From a global point of view the differences between the rich and the poor
are growing larger.

Prof. Gunnar Myrdal maintains that economic development results in economic

development results in a circular causation process leading to rapid development of
developed countries while the weaker countries tend to remain behind the poor.

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According to him if market forces are left free, economic activities which
give a higher than avg. Return in developing economy as well as cultural
activities would tend to cluster in certain localities or regions due to
increasing benefits of internal and external economies.

The rest of the country would remain in backwater. Myrdal was

convinced that market forces lead to deepening of interregional
differences - i.e. the rich regions are getting richer and the poor are
getting poorer .

The impulses which may cause negative cumulative process include

a sudden bankruptcy of a production plant or local increase of taxes.

In this context, Myrdal points out that the rich regions may utilize
external and internal economies of scale.

Myrdal considers traditional mechanisms such as mobility of

capital, regional drainage (outflow of financial resources from the
periphery to the center via bank system) and selective
migration a means by which cumulative mechanisms manifest
themselves.

Myrdal held that the effects of individual cumulative mechanisms are

related and lead to a growth spiral - i.e. to the outflow of growth
sources (capital and labor) from the underdeveloped to more developed
regions.

THE SPREAD EFFECT:

Refers to the expansionary momentum emanating from the centres of economic expansion to
other regions. They have a positive impact on the dev of other regions and operate through:

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a. Increased demand for agricultural products and raw materials in progressive regions
b. Extension of advanced technology to the lagging regions from advanced regions
c. Diseconomies of scale in the prosperous regions, resulting in the dispersal of activities
to the lagging regions where such activities are likely to become more profitable with
access to cheaper amenities in peripheral regions .

Hence spread effects lead to convergence i.e., reduction in inequality between regions by

a. As rich region grows it demands more products from poorer regions, thus stimulating
growth in latter
b. Out migration of factors from poor regions may induce a more efficient use of
resources with an internal re- allocation from low wage to high wage and high
productivity sectors, thus generating growth.

Ex- case study of Thailand’s Automobile industry: illustrating spread

effects (centrifugal force)
✓ In 1990s- car manufacturing rose in Japan- relocated factories to Thailand- job
creation for Thailand locals- transfer of skills from Japan counterparts

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THE BACKWASH EFFECT:

The term refers to the forces emanating from the prosperous regions which discourage
growth in the lagging areas. Myrdal believed that spread effects are offset by backwash
effect.

1. Increased demand for peripheral goods resulting from an increase in propensity of

a centre or region may not materialise if peripheral goods are primarily
agricultural commodities with low income elasticity of demand. Thus an increase
in income in richer areas will not trigger off increased demand for agricultural
commodities because the population was already above the subsistence level and
likely to increase demand for other industrial goods and luxury items
2. Progressive regions tends to attract migrants from other parts of the country; the
resultant selective outmigration of capital and skilled labour from the poor region
to the rich may reduce the ability of the poor region to compete
3. Diseconomies of the rich regions tend to be offset by other economic and socio-
psychological benefits

Therefore backwash effect leads to a divergence i.e., an increase in economic inequality

between regions.

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BACKWASH vs. SPREAD EFFECTS:

Equilibrium not possible – 2 correlations from United Nations Economic Commission for
Europe which is based on the argument that the higher level of eco dev that a country has
attained already, the stronger the spread effects will usually be.

1. Regional inequalities are much wider in poorer than in the richer countries
2. Regional inequalities are increasing in poorer countries and diminishing in richer
ones.

CUMULATIVE CAUSATION:

region of eco dev starts the process of

cumulative causation

centripetal forces begin to operate

whereby capital and labour are attracted
into the expanding area which further
stimulates its properity in cost of periphery

multiplier effect leads growing industries to

produce other, secondary industries which
are dependent on original ones.

this chain reaction produces self sustaining

economic growth

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✓ Inequalities occurs because BWE> SPE i.e., poverty is further perpetuated by poverty
✓ SPE > BWE i.e., affluence is further promoted by affluence and under such situations
cause becomes its own effect.
✓ The process of cumulative causation starts accidentally due to momentum of an early
start or just by chance.

rich in resources

capital inflow inflow of labour

increases and capital
Cumulative
causation in
flourishing
regions

economic
activities in the more investment
region increase

job generation

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lack of
adequate
resources

hindered
lack infra
growth

Cumulative
causation for
poor region

less economic lacks

activities investment

low job lacks capital

generation inflow

Myrdal identifies international trade as the main mechanism which causes market
forces to increase inequalities between developed and underdeveloped countries .
The development of interregional problems happens in three stages :

1. selection – subjects achieve different levels of success,

2. expansion of the successful - the difference are at their peaks as successful
subjects utilize their dominance to the maximum,
3. diffusion/integration - differences are decreasing due to mutual relationship
or the organicity of the whole system.

In developed countries the positive effects on less developed regions is more

significant than in developing countries due to the system of parliamentary
democracy, stable and integrating institutional framework and a conscious effort of
the state to decrease the differences between the rich and the poor in accordance to
the concept of welfare state .
The main tool to improve underdeveloped region is, according to Myrdal, an
integrated development plan which allows the implementation of investments

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which are beneficial for the whole society, they are non-profit, but they allow the
achieve external economies of scale to other subjects and thus initialize growth in
regions.
APPLICATIONS:
Myrdal´s theory received different evaluations - application of some of the
components of this theory aided in some countries to a significant improvement in
lifestyle (e.g. Sweden after WWII) but, on the other hand, this theory also led to
the expansion of public sector, increased taxation and the loss of competitiveness.
Therefore, in the 1990s many authors talked about the crises of "Scandinavian
model. Further information about current modifications of this model in the 1990s
(towards the limitation of public sector) can be received in Stephens (1995),
Andersen (1997) and Einhorn and Logue (2003).

CRITICAL EVALUATION:
1. this model combines national and international forces which tend to keep
backward countries in cumulative process where poverty becomes its own
cause.
2. Made important contributions to the theories of convergence and
divergence, agglomerations and locational economies and the theory of
vicious circle
3. He was in support of balanced growth and wanted it to be initiated, directed
and sustained by government and supported the theory of SPONSORED
GROWTH
4. Criticized regarding the “accidental factors” as the only factors which start
the growth process.
5. There are setbacks in developing regions and there can be development in
vicious circle region.
6. The agglomerating factors can also bring decreasing returns when
diseconomies overcome the economies.
7. Free play of market forces and unhampered trade have tended cramp the
export potential of such countries creating a GREAT GAP bet imports and

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exports of underdeveloped countries which makes economic development a

costly and lengthy affair

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