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Growth as a Chain Reaction: its Production Function, the Three Growth Regimes and the Advanced Economies

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  • Alain Villemeur

Abstract

A new endogenous growth model has been developed, reconciling the ideas of Kaldor (economic growth as a chain-reaction), Schumpeter (creative destruction) and Keynes (effective demand); a new production function is obtained. From this growth model, it is shown that there are three growth regimes, with optima characterized by maximizing the return on rationalization investment or capacity investment. These lessons are consistent with the reality of 17 advanced economies (European, Anglo-Saxon, and Japanese) over the long period 1961-2018 for which we have precise data. These three growth regimes reflect economies during the post-war boom, highly job-creating Anglo-Saxon economies, but also economies that have performed poorly since the 2000s. The fundamentals are also consistent with the characteristics of the optima, thus reflecting the entrepreneurs? objective of maximizing the return on rationalization investment or capacity. Within each growth regime, increasing the profit share in income weakens GDP growth and productivity growth, while it can improve employment growth.

Suggested Citation

  • Alain Villemeur, 2023. "Growth as a Chain Reaction: its Production Function, the Three Growth Regimes and the Advanced Economies," Revue d'économie politique, Dalloz, vol. 133(5), pages 653-691.
    • Handle: RePEc:cai:repdal:redp_335_0653
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