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AN ASSIGNMENT SUBMITTED

BY

ALIEZE, KELECHI SAMUEL

Critically appraise Joan Robinson’s model of capital accumulation,

highlighting the assumptions of the model and how it can be applicable to

LDC’s like Nigeria

The Robinson Model

Mrs. Joan Robinson in her book “The Accumulation of Capital” builds a simple

model of economic growth based on the ‘capitalist rules of the game’ but “it is not

so much concerned with an automatic convergence to a moving equilibrium in a

capitalist economy, as with studying the properties of equilibrium growth.”

Assumptions

Mrs Robinson’s model is based upon the following assumptions:

 There is a laissez-faire closed economy.

 In such an economy capital and labour are the only productive factors.

 In order to produce a given output, capital and labour are employed in fixed

proportions.

 There is neutral technical progress.


 There is no shortage of labour and entrepreneurs can employ as much labour as

they wish.

 There are only two classes, the workers and the entrepreneurs between whom the

national income is distributed.

 Workers save nothing and spend their wage income on consumption.

 Entrepreneurs consume nothing but save and invest their entire income from

profits for capital formation. “If they have no profits the entrepreneurs cannot

accumulate and if they do not accumulate, they have no profits.”

 There are no changes in the price level.

A Critical Appraisal of Joan Robinson’s Model of Capital Accumulation

Mrs Robinson’s model is an elaboration of Harrod’s growth model. The possible

growth rate is Harrod’s natural growth rate. In the golden age, the actual (G) and the

natural growth (Gn) rates are equal to each other and the warranted growth rate (Gw)

confirms to them. Both postulate neutral technical conditions and a constant saving

ratio. However, Joan Robinson’s theory of capital accumulation depends on the

profit-wage relation and on labour productivity. Harrod’s theory on the contrary

depends on saving-income ratio and on capital productivity. The former stresses the

importance of labour in capital accumulation while the latter that of capital.


Commenting on Mrs Robinson’s model Kurihara opines that “J. Robinson’s chief

contribution to post-Keynesian growth economics seems to be that she has integrated

classical value and distribution theory and modern Keynesian saving-investment

theory into one coherent system.”

But it “is not capable of being modified so as to introduce fiscal-monetary policy

parameters- unless labour productivity, the wage rate, the profit rate and the capital-

labour ratio could be regarded as objects of practical policy as they might been

regarded in a completely planned economy.”

Its Weaknesses

Despite these merits, it has the following weaknesses:

 According to Kurihara, “Joan Robinson’s discussion of capital growth has the

subtle effect of discrediting the whole idea of leaving so important a problem as

economic growth to the capitalist rules of the game. Her model of laissez-faire

growth demonstrates how precarious and insecure it is to entrust to private profit-

makers the paramount task of achieving the stable growth of an economy

consistent with the needs of a growing population and the possibility of

advancing technology.”

 Joan Robinson’s model is based on the assumption of a closed economy. But this

is an unrealistic assumption because capitalist countries are open rather than


closed economies in which foreign trade plays a crucial role in accelerating the

growth rate.

 This model assumes institutional factors as given. But the role of institutional

factors as one of the determinants of economic growth cannot be neglected in any

model. The development of an economy to a considerable extent depends on

social, cultural and institutional changes.

 This model is based on the unrealistic assumption of constant price level. When

an economy moves on the path to progress, investment has to be increased

continuously which tends to raise the demand for factors but their supply cannot

be increased to match the demand. This leads to rise in prices. Thus price rise is

inevitable with growth.

 Mrs Robinson assumes that capital and labour are employed in fixed proportions

to produce a given output. This is an unrealistic assumption because in a dynamic

economy there are no fixed coefficients of production. Rather, substitutability

between capital and labour takes place through time, the degree of substitutability

being dependent upon the nature of technological changes.

Its Applicability to Underdeveloped Countries

Robinson’s model has the following merits for underdeveloped countries.


 Joan Robinson, in her theory, studies the problem of population and its effect on

the rate of capital accumulation. There is a “golden age” which any country can

achieve through planned economic development.

 An underdeveloped economy faces the problem of the rate of population growth

being faster than that of capital growth, i.e., DN/N>DK/K, as posed by Joan

Robinson. It reveals the tendency of progressive underemployment in such

economies.

 The “potential growth ratio” is crucial to Robinson’s theory of economic growth.

The golden age depends on the growth ratio. The task of planning becomes easier

if the potential growth ratio of an economy is calculated for the planning period

on the basis of the growth rate of labour force and of output per head.

 In an underdeveloped economy, the rate of capital accumulation is always less

than its potential growth ratio that is why it is backward and possesses surplus of

labour force. It, therefore, rests with the planning authority to increase the rate of

accumulation to the level of the growth ratio for the economy. An

underdeveloped country cannot, however, match the two by following the

capitalist rules of the game. On the contrary, it devolves on the planning authority

to take the initiative in controlling and regulating not only private investment but

also public investment in such economies.


However, it is not possible to use the concept of the ‘golden age’ in solving the

problems of underdevelopment, for the unchanging continuity required for the

golden age is not present in a developing economy.

References

Luigi, L. P Beyond the Accumulation of Capital in Joan Robinson’s Economics 247

Edward, J. N, Money in the Accumulation of Capital 283in Joan Robinson’s

Economics e.d Gibson, B