The unfolding of events connected with a change in the economy. These changes apply to a whole set of variables as a consequence of the multiplier effect. Thus, the location of a new factory may be the basis of more investment, more jobs both in that factory and in ancillary and service industries in the area, and have a better infrastructure which would, in turn, attract more industry. The figure illustrates cumulative causation as envisaged by G. Myrdal (1957).
The momentum of change is self-perpetuating, and investment should continue to be attracted to the area. (see agglomeration). A further part of Myrdal's ideas is that this process of improvement is made at a cost to some other part of the economy; that regions prosper as others feel the loss of investment, and the out-migration of the fittest of their population.
Three stages of regional economies occur: the pre-industrial phase with few regional inequalities; a time when cumulative causation is working, where regional inequalities are greatest because of the backwash effect; and a third stage where the spread effect stimulates growth in the periphery.
Cumulative causation, like the multiplier, also works ‘backwards’—as a major factory closes, the effects are felt throughout the local economy.
Cumulative causation
