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Demand-Led Growth Theory: An Historical Approach

  • Smith, Matthew

This paper develops upon the Keynesian theory of demand-led growth in order to provide an analytical framework conducive to explaining economic growth and development in concrete terms consistent with the fundamental idea that growth in output and employment is determined by the growth in aggregate demand. The framework employs an historical approach to identify the main factors and their role in explaining demand-led growth and the accumulation process. The theoretical model developed abandons steady-state conditions by proposing that capacity utilization varies in the long run as well as in the short run to ensure output has the elasticity to accommodate levels of autonomous demand free of any capacity saving constraint. On the basis of our analytical framework, the paper considers the main factors which explain the growth in aggregate demand: first, by examining the variables that determine the ‘super-multiplier' and what social, institutional and technical conditions can cause its value to change over time; second, by identifying the components of autonomous demand and the main forces explaining their growth; and third, by considering the manner in which technical progress promotes demand-led growth.

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File URL: http://hdl.handle.net/2123/7214
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Paper provided by University of Sydney, School of Economics in its series Working Papers with number 2011-02.

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Date of creation: Feb 2011
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Handle: RePEc:syd:wpaper:2123/7214
Contact details of provider: Postal: Sydney, NSW 2006
Phone: 61 +2 9351 5055
Fax: 61 +2 9351 4341
Web page: http://sydney.edu.au/arts/economics
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  1. Matthew Smith, 2006. "On Interest And Profit: Thomas Tooke'S Major Legacy To Economics," Contributions to Political Economy, Oxford University Press, vol. 25(1), pages 1-34, August.
  2. Serrano, Franklin, 1995. "Long Period Effective Demand and the Sraffian Supermultiplier," Contributions to Political Economy, Oxford University Press, vol. 14(0), pages 67-90.
  3. Pierangelo Garegnani & Antonella Palumbo, 1997. "Accomulation of capital," Departmental Working Papers of Economics - University 'Roma Tre' 0002, Department of Economics - University Roma Tre.
  4. Trezzini, Attilio, 1998. "Capacity Utilisation in the Long Run: Some Further Considerations," Contributions to Political Economy, Oxford University Press, vol. 17(0), pages 53-67.
  5. Antonella Palumbo & Attilio Trezzini, 2003. "Growth without normal capacity utilization," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 10(1), pages 109-135.
  6. Trezzini, Attilio, 1995. "Capacity Utilisation in the Long Run and the Autonomous Components of Aggregate Demand," Contributions to Political Economy, Oxford University Press, vol. 14(0), pages 33-66.
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