Kaldor's 1970 Regional Growth Model Revisited

Published date01 September 2014
DOIhttp://doi.org/10.1111/sjpe.12048
Date01 September 2014
AuthorA. P. Thirlwall
KALDOR’S 1970 REGIONAL GROWTH
MODEL REVISITED
A. P. Thirlwall
ABSTRACT
Kaldor’s 1970 paper ‘The Case for Regional Policies’ was republished in the 60th
anniversary volume of the Scottish Journal of Political Economy. This article
reflects on the model after more than 40 years, and argues that although it has been
criticized for its deterministic nature, it has lost none of its relevance. It predates
the ideas of so-called ‘new’ growth theory, and the new economic geography of
Krugman, and provides at least a partial explanation of why growth rates and levels
of per capita income between regions and between countries can continue to persist
and even widen in contrast to the predictions of orthodox equilibrium theory.
II
NTRODUCTION
In the 60th anniversary issue of the Scottish Journal of Political Economy,
Kaldor’s 1970 article ‘The Case for Regional Policies’ was reprinted as the
most cited article in the Journal during the decade 19631973 (Kaldor, 2013).
I provided a commentary on the paper (Thirlwall, 2013) but was restricted for
words. In the present article, I reflect in more depth on the Kaldor 1970 regio-
nal growth model, and elaborate on its appeal and significance. After more
than 40 years, it has lost none of its relevance, and provides at least a partial
explanation of why growth rates and levels of per capita income between
regions and between countries continue to persist and even widen.
The first point to make is that the origin of Kaldor’s interest in regional
economic growth is not entirely clear, but it did coincide with his switch of
interest in the mid-1960s from the pure theory of growth (Kaldor, 1957, 1961)
to the applied economics of growth when he became involved in policy-mak-
ing in the United Kingdom at the highest level as Special Adviser to the
Chancellor of the Exchequer in the 1964 Labour government. In his Cam-
bridge Inaugural Lecture in 1966 (Kaldor, 1966), he addressed the causes of
the slow rate of growth of the UK economy compared to the economies of
continental Europe, and related them to the slow rate of growth of the manu-
facturing sector, which was unable to draw on cheap surplus labour in agri-
culture. To compensate, Kaldor argued for a Selective Employment Tax
(SET) on the service sector to release labour from ‘over-manned’ services, and
University of Kent
Scottish Journal of Political Economy, DOI: 10.1111/sjpe.12048, Vol. 61, No. 4, September 2014
©2014 Scottish Economic Society.
341

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