International competitiveness in post-Keynesian growth theory: controversies and empirical evidence

A fundamental starting point for post-Keynesian theory concerning growth in open economies is succinctly expressed in the following statement by Kaldor: ‘[T]he main autonomous factor governing both the level and the rate of growth of effective demand of an industrial country…<it>is the external demand for its exports: and the main factor governing the latter is international competitiveness, which in turn depends on the level of its industrial cost relatively to other industrial exporters</it>’ (<cross-ref type="bib" refid="CIT0030">Kaldor, 1971</cross-ref>, p. 7; italics added). Moreover, thanks to increasing returns in manufacturing, export expansion and international competitiveness would interact so as to create vicious or virtuous circles of cumulative causation. A few years later Kaldor, having found a positive correlation between the time changes of the main industrial countries’ relative manufacturing export shares and that of their relative unit costs—a correlation that became known as the ‘<it>Kaldor paradox</it>’—dismissed his original cumulative causation theory and adopted a version close to Harrod’s ‘foreign trade multiplier’. The purpose of this paper is to reaffirm the Kaldorian cumulative causation theory in its original version, by providing a firmer analytical basis and showing that, contrary to the ‘Kaldor paradox’, time changes in export performance must be ‘explained’ by levels rather than by <it>changes</it> in unit costs.