Cambridge Growth Models

Abstract

For the past two decades, a group of distinguished economists on the faculty of the University of Cambridge in England have severely criticized the approaches to the theory of economic growth used by the neo-classical school. Almost all the growth models discussed until now adopt the neo-classical approach. Salient features of that approach are the concept of an aggregate capital stock, smooth and well-behaved production functions, marginal productivity theory of income distribution, no independent investment function and full or near-full employment assumed. The Cambridge School (Nicholas Kaldor, Joan Robinson, Luigi Pasinetti, etc.), on the other hand, prefers to work with fixed coefficients or an activity analysis approach to production, independently determined investment function, factor prices not determined by marginal products, different propensities to save for workers and firms, and full employment not necessarily attained automatically. Some of the objections of the Cambridge critics have been taken into account in recent works by neo-classicists. For instance, the Keynes-Wicksell approach, discussed in Chapter 5, retains most of the features of the neo-classical models but considers saving and investment behavior as being determined independently. Vintage models relax, at least partly, the concept of a homogeneous capital stock. In the last chapter we explored in detail the properties of neo-classical models using the Kaldor-Pasinetti assumption of two income classes with different propensities to save. In the present chapter we explore some of the alternative approaches adopted by the Cambridge economists and examine their implications. For an excellent treatment of the Cambridge controversy, the reader is referred to Wan’s book [ 15, Ch. 3].