Mrs. Joans Robinson
Model of Economic Growth:
Mrs. Robinson includes the issue of
population growth in her model. She shows the effects of Population on the rate
of Capital Accumulation and rate of Growth of Output.
Her model is based upon two
(i) Capital accumulation depends upon distribution of income.
(ii) The utilization of labor depends upon supply of labor and capital.
Assumptions of the Model:
(i) National income is distributed between two classes of the economy, i.e.,
labor and producers.
(ii) The laborers entirely spend their wages on consumption and do not make
(iii) The producers who earn profits make the savings and reinvest
such savings and do not make any consumption. If they do not earn profits, they will not be able to
invest. And if they do not invest, they will not be able to earn profits.
(iv) There are
no technological changes and ratio of K to L remains constant.
(v) There is no change in price level.
(vi) There is closed economy and no intervention by the state.
(vii) There is no shortage of supply of labor in the economy.
As told above that model assumes the existence of two classes in the economy.
The labor class consumes all of its income while the entrepreneurs reinvest
their profits. Accordingly, the real savings remain equal to real investment.
But how much money producers invest, depends upon the real wages demanded by.
the labor. Moreover, the productive efficiency and BOP, etc., are obstacles in
the way of promoting investment. As the economy grows, such obstacles become
high and high. Thus, in the presence of such obstacles, economic growth depends
upon the role of entrepreneurs. If they make inventions and innovations then the
obstacles in the way of economic growth will be surmounted. In this way, the
economy will enter in a stage which is known as Golden Age by Mrs.
Robinson. Here, capital accumulation is at a higher rate. Here, capital
accumulation is maintained through the constant rate of profit - which is
known as Golden Rule of economic growth by Mrs. Robinson.
The growth rate during golden age will be similar to Harrod's Natural Growth
rate. We now explain the model symbolically.
The equation (3) shows that the rate of profit (π) depends upon the
efficiency of labor = p = Y/N, real wages (w/P) and the ratio of K to N. i.e., θ
As producers wish to maximize their profits. Accordingly, we will take first
derivative of profit function and keep it equal to zero. As P.F. is:
Y = f (N, K)
Equation (11) shows the growth rate of capital which the entrepreneurs can
attain by depending upon capitalistic principle. This equation also shows that
growth rate of capital may grow if net return of capital (p - w/P) increases
more than capital labor ratio (9). As Ricardo said, "Capital accumulation will
be strengthened if the level of real wages is low". This means that Mrs.
Robinson wishes to take us towards Ricardian growth theory through Keynesian
In Robinson's golden age, at
equilibrium, labor will be fully employed and full use of capital will become
possible. But such will happen only if θ = K/N
remains constant. At Yf, the rate of change of labor and rate of change of
capital will be equalized. It is as:
K/N = θ
K = Nθ
K/θ = N
N = K/θ
In case of change, we have:
ΔN = ΔK/θ
From this relation we can find the rate of change of labor force having
compatibility with the rate of change of capital.
Dividing both sides by N, we get:
The eq.(12) shows that the labor will be fully employed if labor and capital
grow at the same rate or if capital grows at the same rate to that of growth of
labor, Yf of labor will become possible. Because in this situation the ratio of K to N, i.e.,
remain constant. When labor and capital grow in the same ratio - the equilibrium
position of the economy is known as Golden Age. It is shown in
Here, OW* is minimum wage rate. ON is growth of labor force. While OY* is
expansion path. At C, we draw a tangent. Here, K/N = OK, while growth rate of
labor is ON*. The wages given to labor are OW*, then the rate of surplus
(profits) will be equal to HC. Such profits will be able to absorb the
growth of labor which is ON*. This is the golden age, because profits absorb the
Showing the effect of capital accumulation on growth of the economy, we show
the effects of growth of labor force on economic growth. She says if in an
economy, population and labor grow but capital does not grow. As a result, the
MPL will decrease. If real wages remain constant then profits of producers will
decline - badly affect the capital accumulation.
This will result in unemployment, as it is happening in LDC's. Thus
Yf ia possible only if increase in labor force and increase in capital are equal. This is
the golden age. It is as:
ΔN/N = ΔK/K
In golden age, the proportion of profits and wages remain the same. All the
variables in the economy grow at the same rate. Under the proper rate of capital
accumulation - there is a neutral technical progress and there is a constant
ratio between capital and output.