Circular Causation Theory by Gunnar Myrdal

© Gunnar Myrdal Circular circulation causation (CCC) is a multi-causal approach where the core variables and their linkages are delineated where the form of an institution will lead to successive changes in other institutions which are circular in that they continue in a cycle, many times in a negative way.
© The process of CCC starts accidentally due to momentum of an early start or just by chance.
© The cumulative causation action has been built upon spread effect and backwash effects.
©The theory emphasizes that “poverty is further perpetuated by poverty” and “affluence is further promoted by affluence”.
©In backward regions problem creates more problems. In developed regions auto solutions solve all problems.
©The theory maintains that economic development results in a circular causation process leading to rapid development countries while the weaker countries tend to remain behind and poor.
©It rejects the assumption of automatic tendency of socio-economic system towards stabilization and holds that a change does not create opposite reaction but other changes which emphasize it.
© According to Myrdal market forces lead to deepening of inter-regional differences. The effects of individual cumulative mechanisms (selective migration) are related and lead to growth spiral i.e. to the outflow of growth sources (capital and labor) from the underdeveloped to more developed regions.

Premise:

1.there is a small group of wealthy countries and many more extremely poor countries,
2.wealthy countries continue to grow while poor states stagnate (developing countries).
3. from a global point of view the differences between the rich and the poor are growing larger.
BACKWASH AND SPREAD EFFECT
● Negative or Backwash or polarization:
It basically means that if one particular area in a country starts growing or developing, it causes people, human capital as well as physical capital (infrastructure, finance, machines etc.) from other parts of the country to gravitate towards this growing centre. It encourages growth of poles at the expense of other surrounding regions (Negative impact). For instance, in India, let’s say o Delhi is the developing centre with all the companies being set up there. o Then people from all over Haryana, Punjab, UP, Bihar etc. have a tendency to move to Delhi because all companies are located there and better employment opportunities exist. o So, Delhi will grow but the remaining areas will be worse off. This is Backwash effect.
● Positive or Trickle down or spread effect:
It is the dispersal of growth away from poles towards the hinterland (Positive Impact). The growth of demand in more developed regions for resources and agricultural products produced in underdeveloped regions or expansion of technological advancement. This essentially leaves the other areas worse off than before because their best brains and capital leave them to go to the growing centre. It means that growth inone area adversely affects the growth in the other. Counter to the Backwash Effect is the spread effect. o Development in one place, spreads to its suburbs and all the adjoining areas.
For Delhi, we could argue that suburbs like Faridabad, Gurgaon, Ghaziabad etc. have benefited from Delhi’s growth due to the Spread Effect caused by Delhi’s growth

◆ Myrdal believes that international and inter-regional economic relations in practice involve unequal exchanges in the sense that the weak is always exploited by the strong. He describes the backwash effects of migration, capital movement and trade in the backward regions. The main cause of backwardness and regional disparities has been the strong backwash effect and weak spread effects.
◆ Developed region is developing at a faster rate at the cost of backward region. Income earned by developed region is not reinvested in backward regions but is repatriated to the developed sectors/regions leading to more development in these areas.
◆ Spread effect continues to become stronger in developed countries while backward effect continued to become even more spread in backward countries.
◆The development of a region in a balanced manner is an interplay of the above two forces.
Relationship between backwash and spread effect:
∆ When backwash effect dominates divergence will develop; periphery will remain weak, only centre will develop and dualism in growth is promoted.
∆ When spread effect dominates convergence will develop; periphery will develop, there will be economic integration between centre and periphery, propagating a balanced development. Cumulative causation theory proves that:
∆ Market mechanism will not bring equality between regions but will increase inequalities. o Govt. Intervention will check backwash effect from getting cumulative.
Pros:
o This model combines national and international forces which tend to keep backward countries in morass of cumulative process where poverty becomes its own cause.
o He proved that the so called competitive markets instead of solving the problem of backward region it would accentuate them.
o Has made important contributions to the theories of convergence and divergence, agglomeration and locational economies and the theory of vicious circle.
o Myrdal was a supporter of balanced growth and wanted it to be initiated, directed and sustained by govt. He was a strong supporter of the theory of sponsored growth.
Cons:
o The theory has been criticized regarding “accidental factors” as the only factors which start the growth process.
o There are setbacks in developing regions and there can be development in vicious circle region.
o The agglomerating factors (same factors which Myrdal emphasized on) can also bring decreasing returns when diseconomies overcome the economies. o It can also be argued that even market mechanism can reduce inequalities and disparities between two regions.