Kaldor's development Theory

Nicholas Kaldor, a respected British economist, liked the policy of industrialization and industry effects." The Kaldor model for growth and development, developed by the renowned British economist Nicholas Kaldor, provides a different approach to economic growth that emphasizes industrialization and sectoral interactions. A key assumption made by Kaldor was to agree with the viewpoint that the manufacturing sector encourages the larger part of the economic growth movement as a result of increasing the returns to scale and installing the so-called dynamic economies of scale. The realization is based on the fact that the production ratio of an investment is proportionate to the percentage of the labor force engaged in the manufacturing sector so that the other will be the features of productive sectors in the total value added by that sector. This is predicated on the observation that productivity growth in manufacturing tends to spill over to other sectors, thereby stimulating overall economic growth.

Kaldor's model also puts in evidence the impact of demand on the rate of growth. Kaldor's second law, or the Verdoorn effect, describes a positive feedback loop between output growth and productivity growth in the manufacturing sector. As output begins to rise, so do productivity levels, thanks to learning-by-doing, technology improvement, and more efficient resource allocation. The gains in productivity, thus, will reduce costs and prices, thus, increasing the demand and output.

Another critical aspect of Kaldor’s model is the role of nonindustrial sectors, especially agriculture and services, in the context of that industry. Kaldor made a case that due to development, labor and capital shift from low-value-added sectors such as agriculture to high-productivity sectors like manufacturing. This structural change is necessitated by the growth of a country. Kaldor's third law states that the faster the growth of manufacturing output, the faster the transfer of labor from agriculture to manufacturing, which enhances overall productivity and economic growth.

The role of export-led growth was also emphasized by Kaldor. He was of the view that exports are a necessary source through which manufacturing through the manufacturing sector utilizing economies can locate their comparative advantage and rise in the growth rate. Kaldor pointed out that the world economy is connected and the software manufacturing industries are important in the realization of sustainable economic development.

Evidently, the Kaldor model is indicative of the impact of manufacturing on the expansion of Economy, the role of economies of scale in productivity and the need for structural transformation as well as seeking to take advantage of export-driven growth. Here is a model that is a very good tool for understanding the many aspects of economic development and the different paths to sustained growth.