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Consumption-led expansions are toxic for future output growth

Author

Listed:
  • Matti Viren

    (Monetary Policy and Research Department of Bank of Finland; and Department of Economics, University of Turku.)

Abstract

When assessing future growth prospects, does it matter how the economy grows now? In other words, does the current structure of demand affect future growth? This question is analyzed in our paper by using global and EU panel data. The result is quite striking: consumption-led growth – either in terms of private or public or total consumption – leads to slower growth compared with investment-led or exports-led growth. The same qualitative result emerges irrespectively of the length of the past growth period (lag window). It is only that the more often the past is characterized by consumption-led growth the slower the growth rate in the future. This is surely important news from the point of view of both structural and cyclical policies.

Suggested Citation

  • Matti Viren, 2022. "Consumption-led expansions are toxic for future output growth," Discussion Papers 154, Aboa Centre for Economics.
    • Handle: RePEc:tkk:dpaper:dp154
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    File URL: http://ace-economics.fi/kuvat/dp154.pdf
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    More about this item

    Keywords

    economic growth; demand management; consumption-led growth;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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