Date Added: Apr 2011
The Structural Economic Dynamic approach is distinguished by its simultaneous approach to demand and supply sides of economic growth. However, the idea that growth itself can transform an economy, which became known in the literature as cumulative causation, cannot be properly studied by this framework because technological progress is treated in the same manner as in the traditional Neoclassical model, that is, it is exogenous. Besides, it is the only source of economy growth with no role played by demand in the pace of economic growth but only in the sectoral composition of the economy. Here the authors introduce Verdoon's Law in the Pasinetti's model of structural change thus making it able to study cumulative causation and thus rendering structural changes endogenous in this model.