Effective demand and the terms of trade in a dual economy: a Kaldorian perspective

Abstract

Along the line suggested by Nicholas Kaldor, the paper incorporates into the analysis of a dual economy effective demand as a problem of generation of agricultural surplus and its realisation into purchasing power for industrial goods. Through this approach, it is shown how one obtains empirical predictions about uneven sectoral growth rates, as well as an effect of the movement in the terms of trade on long‐term industrial growth which is contrary to that suggested by Lewis. The paper also specifies the process of dynamic adjustment of industrial growth in a self‐reinforcing circular flow under conditions of sufficiently high agricultural growth, extending the effective demand argument in a dual economy.

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