A vertically integrated approach to increasing returns and cumulative causation

Ricardo Araujo, Theo Santini and Rafael de Acypreste

Structural Change and Economic Dynamics, 2023, vol. 65, issue C, 49-58

Abstract: Focusing on the interindustry aspect of the structural economic dynamics (SED) to yield a non-autarchic perspective on the vertically integrated sectors (VIS), we go a step further in establishing productivity growth at the industry level being transmitted via inter and intra-sectoral pecuniary spillovers. To accomplish this task, we deal with the technical aspects of shifting from inter-industry to vertically integrated analysis. Besides, dimensions of the Kaldor-Verdoorn (KV) law are selectively embedded in Pasinetti's multisectoral model, thus rendering technical change endogenous. With this approach, we take into account both external and internal economies of scale, allowing us to formally reconcile the KV and Smith-Young (SY) views on cumulative causation and increasing returns. We highlight that the interdependent nature of the VIS impacts the capability of spreading pecuniary externalities throughout the economy.

Keywords: Cumulative Causation; Vertical integration; Pecuniary externalities (search for similar items in EconPapers)
JEL-codes: B12 B16 B24 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:streco:v:65:y:2023:i:c:p:49-58

DOI: 10.1016/j.strueco.2023.02.005

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