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How Could the South Respond to Secular Stagnation in the North?

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  • Joerg Mayer

Abstract

Developed countries face the risk of a sustained lack of aggregate demand, i.e. secular stagnation. Demand-oriented growth models emphasizing the balance-of-payments constraint raise concerns about attendant adverse growth impacts on developing countries from reduced export growth. These concerns are well-founded, albeit less serious than the simplest version of these models would imply. Relaxing their assumptions and emphasizing cumulative causation forces from domestic-demand growth and relative price effects indicates how changed policies can maintain rapid growth while reducing the import content of demand. Crucial is investment that reduces gaps between the composition of domestic production and domestic demand and emphasizes sectors with cumulative-causation effects, combined with incomes policy and capital-account management. Drawing down excessive foreign-exchange reserves and obtaining concessionary loans from development banks can finance required capital-goods imports. Enhanced South-South integration may be an important complement for small countries.
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Suggested Citation

  • Joerg Mayer, 2017. "How Could the South Respond to Secular Stagnation in the North?," The World Economy, Wiley Blackwell, vol. 40(2), pages 314-335, February.
  • Handle: RePEc:bla:worlde:v:40:y:2017:i:2:p:314-335
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    File URL: http://hdl.handle.net/10.1111/twec.12389
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    Cited by:

    1. Olivia Serdeczny & Eleanor Waters & Sander Chan, 2016. "Non-economic loss and damage in the context of climate change: understanding the challenges," DIE Discussion Paper Series 03/16, German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE).
    2. Adrian Wood, 2017. "Variation in structural change around the world, 1985–2015: Patterns, causes and implications," WIDER Working Paper Series 034a, World Institute for Development Economic Research (UNU-WIDER).

    More about this item

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O20 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - General

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