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Demand-led versus supply-led growth transitions

  • Kevin S. Nell

This paper develops a saving/investment causality hypothesis to distinguish between demand- and supply-led growth transitions. The empirical application shows that India's growth transition in 1980 entailed a shift out of a suboptimal demand regime (1953-78) into an optimal demand regime (1980-2007). A key insight from the causality results is that the fiscal expansion of the 1980s initiated demand growth at the natural rate, while faster export growth in the post-1990 liberalization period relaxed the open economy solvency constraint on demand and played a crucial role in sustaining demand growth at its maximum potential rate.

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Article provided by M.E. Sharpe, Inc. in its journal Journal of Post Keynesian Economics.

Volume (Year): 34 (2012)
Issue (Month): 4 (July)
Pages: 713-748

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Handle: RePEc:mes:postke:v:34:y:2012:i:4:p:713-748
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  1. Miguel A. León-Ledesma & A. P. Thirlwall, 1998. "The Endogeneity of the Natural Rate of Growth," Studies in Economics 9821, School of Economics, University of Kent.
  2. Jakob Madsen & Shishir Saxena & James Ang, 2008. "The Indian Growth Miracle And Endogenous Growth," Monash Economics Working Papers 17/08, Monash University, Department of Economics.
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  13. Montek S. Ahluwalia, 2002. "Economic Reforms in India Since 1991: Has Gradualism Worked?," Journal of Economic Perspectives, American Economic Association, vol. 16(3), pages 67-88, Summer.
  14. Nell, Kevin S. & Santos, Luis Delfim, 2008. "The Feldstein-Horioka hypothesis versus the long-run solvency constraint model: A critical assessment," Economics Letters, Elsevier, vol. 98(1), pages 66-70, January.
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  16. T. W. Swan, 1956. "ECONOMIC GROWTH and CAPITAL ACCUMULATION," The Economic Record, The Economic Society of Australia, vol. 32(2), pages 334-361, November.
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  19. Anthony P. Thirlwall, 2011. "Balance of payments constrained growth models: history and overview," PSL Quarterly Review, Economia civile, vol. 64(259), pages 307-351.
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