The significance of the theory of vertically integrated processes for the problem of economic development

Abstract

This paper argues that Pasinetti’s theory of growth provides new insights into the problem of economic development. Firstly, by using Pasinetti’s 1981 contribution, it is maintained that the method of vertical integration supersedes the Dobb–Sen critique of the neoclassical investment rule. Secondly, it is pointed out that the effective demand full-employment condition developed in the 1993 book is conceptually valid also for a non-industrialized country. This conclusion is compared with the Kaldor–Kalecki–Robinson view according to which Keynesian considerations apply only when the stock of capital suffices to absorb the whole of the working population. Thirdly, and finally, it is shown that the limitations of the Fel’dman–Mahalanobis model of growth emerge in relation to the passive role of per capita consumption demand. In this context Pasinetti’s major achievement is identified in the strict connection established between the growth rate of productivity and the role played by the natural wage in his system.