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Demand Drives Growth all the Way

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  • Taylor, Lance
  • Foley, Duncan K.
  • Rezai, Armon

Abstract

A demand-driven alternative to the conventional Solow-Swan growth model is analyzed. Its medium run is built around Marx-Goodwin cycles of demand and distribution. Long-run income and wealth distributions follow rules of accumulation stated by Pasinetti in combination with a technical progress function for labor productivity growth incorporating a Kaldor effect and induced innovation. An explicit steady state solution is presented along with analysis of dynamics. When wage income of capitalist households is introduced, the Samuelson-Modigliani steady state "dual" to Pasinetti's cannot be stable. Numerical simulation loosely based on US data suggests that the long-run growth rate is around two percent per year and that the capitalist share of wealth may rise from about forty to seventy percent due to positive medium-term feedback of higher wealth inequality into its own growth.

Suggested Citation

  • Taylor, Lance & Foley, Duncan K. & Rezai, Armon, 2018. "Demand Drives Growth all the Way," Ecological Economic Papers 20, WU Vienna University of Economics and Business.
    • Handle: RePEc:wiw:wus045:6891
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    File URL: https://epub.wu.ac.at/6891/
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    Cited by:

    1. Daniele Tavani & Luca Zamparelli, 2017. "Endogenous Technical Change In Alternative Theories Of Growth And Distribution," Journal of Economic Surveys, Wiley Blackwell, vol. 31(5), pages 1272-1303, December.
    2. Rezai, Armon & Taylor, Lance & Foley, Duncan, 2018. "Economic Growth, Income Distribution, and Climate Change," Ecological Economics, Elsevier, vol. 146(C), pages 164-172.
    3. Stamegna, Marco, 2022. "A Kaleckian growth model of secular stagnation with induced innovation," MPRA Paper 113794, University Library of Munich, Germany.
    4. Daniele Tavani & Luke Petach, 2021. "Firm beliefs and long-run demand effects in a labor-constrained model of growth and distribution," Journal of Evolutionary Economics, Springer, vol. 31(2), pages 353-377, April.
    5. Julia Bock-Schappelwein & Michael Böheim & Elisabeth Christen & Stefan Ederer & Matthias Firgo & Klaus S. Friesenbichler & Werner Hölzl & Mathias Kirchner & Angela Köppl & Agnes Kügler & Christine May, 2018. "Politischer Handlungsspielraum zur optimalen Nutzung der Vorteile der Digitalisierung für Wirtschaftswachstum, Beschäftigung und Wohlstand," WIFO Studies, WIFO, number 61256, April.
    6. Cajas Guijarro, John & Vera, Leonardo, 2022. "The macrodynamics of an endogenous business cycle model of marxist inspiration," Structural Change and Economic Dynamics, Elsevier, vol. 62(C), pages 566-585.
    7. Stefan Ederer, 2018. "Makroökonomische Auswirkungen der Digitalisierung," WIFO Monatsberichte (monthly reports), WIFO, vol. 91(12), pages 855-862, December.

    More about this item

    JEL classification:

    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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