Luigi Pasinetti on growth and structural change in international economic relations

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Highlights

  • Critical assessment of Pasinetti's model of structural change in open economies.

  • Uneven productivity developments and dynamic patterns of international specialisation.

  • Channels of international technology transfer and dynamics of international specialisation.

  • Trade specialisation and patterns of catching-up

  • International trade and development policy.

Abstract

This paper covers Luigi Pasinetti's contribution to the analysis of international economic relations as contained in his 'Structural Change and Economic Growth' (1981) and 'Structural Economic Dynamics' (1993). While appreciating the important contribution he makes in this area, the paper also critically examines some aspects of his analysis and suggests further developments.

Introduction

This essay refers to the final chapters in two of Luigi Pasinetti's main books: the magisterial ‘Structural Change and Economic Growth’ (Pasinetti, 1981) with its subtitle ‘A theoretical essay on the wealth of nations’, and the reconsideration of the main themes of the earlier book in ‘Structural Economic Dynamics’ (Pasinetti, 1993) with its subtitle ‘A Theory of the Economic Consequences of Human Learning’. In both these two treatises Pasinetti consistently (a mark of Pasinetti's characteristic pre-occupation with ‘long-term research trajectories’) develops his model of structural economic dynamics which he had already presented in its basic outlines in his Cambridge University Ph.D. in 1962 under the supervision of Richard Goodwin and Richard Kahn2.

The model of structural change and economic growth motivated many researchers to pursue research in the area of structural economic dynamics and it was also one of the main theoretical pillars providing the intellectual foundation of the journal Structural Change and Economic Dynamics.

In the final chapters of the two books, Luigi Pasinetti draws out the implications of the model of structural change and economic growth for the dynamics of international economic relations, thereby providing a counter-point to the way in which international economics had traditionally been taught post-WWII. International economics had until about the early 1980s been dominated by rather static representations of both the Ricardian model of comparative cost advantages and the Heckscher-Ohlin-Samuelson (HOS) theory of relative factor endowments determining patterns of international trade specialisation3.

The implications of applying Pasinetti's model of structural change to international economic relations are radically different ones from those two (static versions) of traditional trade theory. We shall explore these in the current essay.

Section snippets

The basic model of structural change and economic growth

The main features of Pasinetti's model of structural economic dynamics (see Pasinetti, 1981 and 1993) is easily summarised. The core of the model are two factors that generate structural change in an economic system:

  • -

    Uneven productivity growth in different sectors of an economy

  • -

    Changes in the composition of demand as real incomes rise due to Engel's Law

These two factors are interrelated in that the rise in real incomes is due to an aggregate impact of the productivity increases that take place in

Pasinetti drawing out the implications for international economic relations

Pasinetti sets the scene for the application of his model to international economic relations by first discussing the issue of the ‘relative closedness’ of an economic system in an international environment. He states the following:

“Exogenous conditions of a political character can without any doubt close certain economic systems towards the outside world (think of autarchic policies). But, from our point of view, the question must be posited in the opposite way: in the absence of external

Some issues left out and to be explored further

In the following we shall introduce a number of additional issues not as points of criticism of Pasinetti's analysis (as he made certain choices regarding to what he wanted to emphasise or considered as essential) but in order to raise additional topics that can enrich the analysis already provided by Pasinetti and that could point to work that can guide further research.

Heterogeneity and segmentation within industries: Like much of classical trade analysis, Pasinetti's model is formulated at

Conclusion

To sum up: Pasinetti's model of structural change and economic growth does identify the main forces at work that determine the dynamic patterns of structural change and differential growth of economies also in an international economy setting. His analysis puts at the core of international economic relations the importance of ‘international learning’ (international technology transfer) which explains the important scope for less developed economies to make strides in international productivity

CRediT authorship contribution statement

Michael A Landesmann: Conceptualization, Writing – original draft, Writing – review & editing.

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  • Cited by (2)

    1

    The Vienna Institute for International Economic Studies (wiiw); [email protected]. I wish to thank the editors and the two anonymous referees for insightful comments and suggestions.

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