A Vertically Integrated Approach to Increasing Returns and Cumulative Causation

Focusing on the interindustry aspect of the structural economic dynamics (SED) to yield a non-autarchic perspective to the vertically integrated sectors (VIS), we go a step further in establishing that productivity growth at the industry level is transmitted via inter and intra-sectoral pecuniary spillovers. To accomplish this task, we deal with technical aspects of shifting from inter-industry to vertically integrated analysis. Besides, dimensions of the Kaldor-Verdoorn (KV) law are selectively embedded in Pasinetti’s multisectoral model, thus rendering technical change endogenous. With this approach, we take into account both external and internal economies of scale, allowing us to formally reconcile the KV and Smith-Young (SY) views on cumulative causation and increasing returns. We highlight that the interdependent nature of the VIS impacts the capability of spreading pecuniary externalities throughout the economy