Models of structural change and Kaldor’s facts: Critical survey from the Cambridge Keynesian perspective

This study addresses the new research agenda of reconciling structural change with Kaldor’s facts. The mainstream economics interprets the facts as a state at which the economy grows along the generalised balanced growth path. Sectors in multi-sectoral models can be aggregated since the specific functions are used. The motions of aggregate variables can be described by the two-dimensional differential system of equations, as in Ramsey’s model, which has the uniquely (saddle-path) stable steady state. We argue that the mainstream strategy is far from Kaldor’s thoughts and has difficulty analysing structural change of heterogeneous capital. When the Cambridge Keynesian perspective based on Pasinetti’s structural dynamics is applied to the reconciliation, we can expect that structural change of heterogeneous capital can be analysed and the need of institutional changes must be followed by structural change to maintain full employment, whereas the mainstream reconciliation is achieved through the market mechanism.