Effective Demand Constrained Growth in a

The paper presents a two-sector agriculture-industry model of economic growth relevant to both individual developing countries and the world economy as a whole. In doing so, it analyses the model under two different scenarios. The first scenario is that of idealised (relative) price adjustment in which growth is unconstrained by effective demand. This scenario represents a theoretical benchmark because it assumes that adjustment occurs in accordance with notional quantities. Meanwhile, the second is that of quantity adjustment under conditions of "false" trading at non-market-clearing prices leading to a situation where industry, not to mention the economy overall, is constrained in its growth by a lack of effective demand growth emanating from agriculture. The model represents both an interpretation and formalisation of the writings of Nicolas Kaldor (1975, 1976, 1977, 1996).