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Demand-Led Growth Theory: An Historical Approach

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  • Smith, Matthew

Abstract

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.

Suggested Citation

  • Smith, Matthew, 2011. "Demand-Led Growth Theory: An Historical Approach," Working Papers 2011-02, University of Sydney, School of Economics.
    • Handle: RePEc:syd:wpaper:2123/7214
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    References listed on IDEAS

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    1. R. F. Kahn, 1959. "Exercises In The Analysis Of Growth," Oxford Economic Papers, Oxford University Press, vol. 11(2), pages 143-156.
    2. Joan Robinson, 1962. "Essays in the Theory of Economic Growth," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-349-00626-7.
    3. 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.
    4. Cornwall,John & Cornwall,Wendy, 2001. "Capitalist Development in the Twentieth Century," Cambridge Books, Cambridge University Press, number 9780521341493.
    5. Davide Gualerzi, 2001. "Consumption and Growth," Books, Edward Elgar Publishing, number 2433.
    6. Matthew Smith, 2006. "On Interest And Profit: Thomas Tooke'S Major Legacy To Economics," Contributions to Political Economy, Cambridge Political Economy Society, vol. 25(1), pages 1-34, August.
    7. Trezzini, Attilio, 1998. "Capacity Utilisation in the Long Run: Some Further Considerations," Contributions to Political Economy, Cambridge Political Economy Society, vol. 17(0), pages 53-67.
    8. Serrano, Franklin, 1995. "Long Period Effective Demand and the Sraffian Supermultiplier," Contributions to Political Economy, Cambridge Political Economy Society, vol. 14(0), pages 67-90.
    9. Trezzini, Attilio, 1995. "Capacity Utilisation in the Long Run and the Autonomous Components of Aggregate Demand," Contributions to Political Economy, Cambridge Political Economy Society, vol. 14(0), pages 33-66.
    10. Pierangelo Garegnani & Antonella Palumbo, 1997. "Accomulation of capital," Departmental Working Papers of Economics - University 'Roma Tre' 0002, Department of Economics - University Roma Tre.
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    Cited by:

    1. Tony Aspromourgos, 2019. "The Past and Future of Keynesian Economics: A Review Essay," History of Economics Review, Taylor & Francis Journals, vol. 72(1), pages 59-78, January.
    2. Smith, Matthew, 2018. "Demand-Led Growth Theory in a Classical Framework: Its Superiority, Its Limitations, and Its Explanatory Power," Centro Sraffa Working Papers CSWP29, Centro di Ricerche e Documentazione "Piero Sraffa".
    3. Daniele Girardi & Riccardo Pariboni, 2015. "Autonomous demand and economic growth:some empirical evidence," Department of Economics University of Siena 714, Department of Economics, University of Siena.
    4. Dejuán, Óscar & McCombie, John S.L., 2018. "The Supermultiplier-Cum-Finance. Economic Limits of a Credit Driven System," Centro Sraffa Working Papers CSWP32, Centro di Ricerche e Documentazione "Piero Sraffa".
    5. Khan, Muhammad Salar, 2022. "Absorptive capacities and economic growth in low- and middle-income economies," Structural Change and Economic Dynamics, Elsevier, vol. 62(C), pages 156-188.
    6. Ying, Loo Sze & Harun, Mukaramah, 2019. "Responses of Firms and Households to Government Expenditure in Malaysia: Evidence for the Fuel Subsidy Withdrawal," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 53(2), pages 29-39.

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    Keywords

    growth theory; Keynesian demand-led growth; classical economics; economic history;
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