Here's a breakdown of the key elements of Kaldor's growth model:
1. Technological Progress: The model assumes that technological progress drives economic growth. This progress increases productivity, which leads to higher profits and increased investment.
2. Investment and Savings: The model focuses on the relationship between investment and savings. Kaldor argues that investment is the driving force behind economic growth, and savings are the source of funds for investment.
3. Relative Income Shares: Kaldor emphasizes the role of income distribution in determining the level of investment. He postulates that a higher share of profits in national income leads to higher investment, as businesses have more resources available for expansion.
4. The "Kaldor-Verdoorn Law": This law states that there is a positive relationship between output growth and productivity growth. This relationship is based on the idea that economies of scale and learning by doing drive productivity gains as output expands.
5. The "Keynesian Multiplier Effect": Kaldor's model incorporates the Keynesian multiplier effect, suggesting that an initial increase in investment leads to a larger increase in overall economic output through a chain reaction of spending and income generation.
Key Implications of Kaldor's Growth Model:
* Growth is driven by technological progress and investment.
* Income distribution influences investment and growth.
* There is a close link between output growth and productivity gains.
* Government policies can influence growth by promoting investment and technological progress.
Criticisms of Kaldor's Growth Model:
* Lack of rigorous mathematical foundations: The model relies heavily on stylized assumptions and lacks the mathematical precision of later growth models.
* Limited applicability to developing economies: The model is primarily suited to developed economies with a strong industrial sector.
* Neglecting other factors affecting growth: The model focuses mainly on investment and technological progress, ignoring other important factors such as human capital, institutions, and global economic conditions.
Despite its limitations, Kaldor's growth model remains a valuable tool for understanding the key drivers of economic growth and for analyzing the relationship between savings, investment, and technological progress.