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Autonomous demand and the investment share

Author

Listed:
  • Daniele Girardi

    (Department of Economics, University of Massachusetts Amherst, USA)

  • Riccardo Pariboni

    (DEPS, Università degli Studi di Siena, Italy)

Abstract

This paper looks at the effect of demand shocks on the investment share of the economy. Using panel data on 20 OECD countries, we show that the rate of growth of autonomous demand (exports, public spending, and housing investment) is positively correlated with subsequent values of the share of business investment in GDP. By means of an instrumental-variables (IV) strategy, we confirm a positive effect of demand dynamics on the business investment share. We instrument autonomous demand with (i) US demand for imports interacted with exposure to trade with the US, (ii) openness to trade of a country's main export destinations, and (iii) military spending. A permanent 1-percentage-point increase in autonomous-demand growth raises the investment share by 1.5 to 1.9 percentage points of GDP in our preferred panel IV specification. Our results provide empirical support for the view that the influence of aggregate demand on capital accumulation can be a major source of hysteresis. Our results are inconsistent with the canonical New Keynesian three-equations model, the Neo-Kaleckian model with flexible equilibrium utilization, and Classical–Marxian growth models. A positive influence of autonomous demand on the investment share is instead compatible with demand-led models in which capacity adjusts to demand in the long run.

Suggested Citation

  • Daniele Girardi & Riccardo Pariboni, 2020. "Autonomous demand and the investment share," Review of Keynesian Economics, Edward Elgar Publishing, vol. 8(3), pages 428-453, July.
    • Handle: RePEc:elg:rokejn:v:8:y:2020:i:3:p407-453
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    Cited by:

    1. Ettore Gallo, 2022. "When is the long run?—Historical time and adjustment periods in demand‐led growth models," Metroeconomica, Wiley Blackwell, vol. 73(4), pages 1155-1178, November.
    2. Lucio Baccaro & Sinisa Hadziabdic, 2024. "Operationalizing growth models," Quality & Quantity: International Journal of Methodology, Springer, vol. 58(2), pages 1325-1360, April.
    3. Gahn, Santiago José, 2021. "On the adjustment of capacity utilisation to aggregate demand: Revisiting an old Sraffian critique to the Neo-Kaleckian model," Structural Change and Economic Dynamics, Elsevier, vol. 58(C), pages 325-360.
    4. repec:osf:osfxxx:78kad_v1 is not listed on IDEAS
    5. Fazzari, Steven M. & González, Alejandro, 2025. "How large are hysteresis effects? Estimates from a Keynesian growth model," Journal of Economic Dynamics and Control, Elsevier, vol. 173(C).
    6. Allain, Olivier, 2022. "A supermultiplier model with two non-capacity-generating semi-autonomous demand components," Structural Change and Economic Dynamics, Elsevier, vol. 63(C), pages 91-103.
    7. José A. Pérez‐Montiel & Carles Manera, 2022. "Is autonomous demand really autonomous in the United States? An asymmetric frequency‐domain Granger causality approach," Metroeconomica, Wiley Blackwell, vol. 73(1), pages 78-92, February.
    8. Skott, Peter, 2021. "Fiscal policy and structural transformation in developing economies," Structural Change and Economic Dynamics, Elsevier, vol. 56(C), pages 129-140.
    9. Matteo Deleidi & Walter Paternesi Meloni & Antonella Stirati, 2020. "Tertiarization, productivity and aggregate demand: evidence-based policies for European countries," Journal of Evolutionary Economics, Springer, vol. 30(5), pages 1429-1465, November.
    10. Matteo Deleidi & Walter Paternesi Meloni & Antonella Stirati, 2018. "Structural change, labour productivity and the Kaldor-Verdoorn law: evidence from European countries," Departmental Working Papers of Economics - University 'Roma Tre' 0239, Department of Economics - University Roma Tre.
    11. Andrea Borsato, 2021. "Does the Secular Stagnation hypothesis match with data? Evidence from USA," Working Papers of BETA 2021-11, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    12. Summa, Ricardo de Figueiredo, 2022. "Alternative uses of functional finance: Lerner, MMT and the Sraffiansh," IPE Working Papers 175/2021, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    13. Gonzalez, Alejandro, 2024. "Bargaining power, demand growth and the decline of the labor share," OSF Preprints 78kad, Center for Open Science.
    14. Stephen Thompson, 2022. "“The total movement of this disorder is its order”: Investment and utilization dynamics in long‐run disequilibrium," Metroeconomica, Wiley Blackwell, vol. 73(2), pages 638-682, May.
    15. Dvoskin, Ariel & Torchinsky Landau, Matías, 2023. "Income distribution and economic cycles in an open-economy supermultiplier model," Structural Change and Economic Dynamics, Elsevier, vol. 64(C), pages 273-291.
    16. Stirati, Antonella & Paternesi Meloni, Walter, 2021. "Unemployment and the wage share: a long-run exploration for major mature economies," Structural Change and Economic Dynamics, Elsevier, vol. 56(C), pages 330-352.
    17. Guilherme Haluska & Julia Braga & Ricardo Summa, 2021. "Growth, investment share and the stability of the Sraffian Supermultiplier model in the U.S. economy (1985–2017)," Metroeconomica, Wiley Blackwell, vol. 72(2), pages 345-364, May.
    18. Davide Romaniello & Antonella Stirati, 2026. "Potential output versus target unemployment in the EU fiscal framework: implications for the Italian economy of a change in perspective," Review of Evolutionary Political Economy, Springer, vol. 7(1), pages 1-26, December.
    19. Barbieri Góes, Maria Cristina & Deleidi, Matteo, 2022. "Output determination and autonomous demand multipliers: An empirical investigation for the US economy," Economic Modelling, Elsevier, vol. 116(C).
    20. Fabrizio Antenucci & Matteo Deleidi & Walter Paternesi Meloni, 2019. "Demand and Supply-side Drivers of Labour Productivity Growth: an empirical assessment for G7 countries," Working Papers 0042, ASTRIL - Associazione Studi e Ricerche Interdisciplinari sul Lavoro.
    21. Jose A. Pérez‑Montiel & Andreu Sansó & Oguzhan Ozcelebi & Riccardo Pariboni, 2024. "Correction to: Autonomous and induced demand in the United States: A long‑run perspective," Journal of Evolutionary Economics, Springer, vol. 34(4), pages 1019-1020, December.
    22. Di Bucchianico, Stefano, 2021. "Inequality, household debt, ageing and bubbles: A model of demand-side Secular Stagnation," IPE Working Papers 160/2021, Berlin School of Economics and Law, Institute for International Political Economy (IPE).

    More about this item

    Keywords

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    JEL classification:

    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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