Demand‐led growth with endogenous innovation

Abstract

This paper contributes to the recent macro-dynamics literature on demand-led growth, drawing upon the seminal idea that the implications of Harrodian instability may be tamed by a source of autonomous expenditure in the economy.Contrary to the other contributions in this literature, real autonomous expenditure is not growing at an exogenously given rate, and partly consists of a flow of profit-seeking R&D and innovation expenditures raising labour productivity through time. If the state of distribution, hence the wage share, is exogenously fixed and constant, the model gives rise to dynamics in a two dimensional state space, that may converge to, or give rise to a limit cycle around, an endogenous growth path. An exogenous rise of the profit share exerts negative effects on long-run growth and employment, showing that growth is wage led.

R&D-based economic growth in a supermultiplier model

“…Those efforts have added R&D investments as an autonomous demand element. In this sense, as in Caminati & Sordi (2019), endogenous autonomous expenditure (investment in R&D and consumption) grows in line with productivity. Deleidi & Mazzucato (2019) have proposed the idea of an entrepreneurial state, where government R&D is the autonomous expenditure mechanism.…”

“…The recent literature on the SSM has been focusing on implementing new elements to this basic model, such as income distribution, stock-flow consistency, technological dynamics, and also in proposing distinct alternatives to think about the "non-capacity creating" autonomous component of demand. Work on the latter, i.e., the sources of the exogenous rate of autonomous demand that determines the growth rate of the economy, includes workers' autonomous consumption, financed out of credit (Freitas and Serrano, 2015), as part of the wealth of the workers (Brochier & Silva, 2019), capitalists' consumption (Lavoie, 2016), subsistence consumption including an unemployment benefits system (Allain, 2019), government expenditures (Allain, 2015), exports (Nah & Lavoie, 2017) and R&D investments (Caminati & Sordi, 2019). All these model expansions consider the autonomous expenditure as an exogenous variable, with the exception of Caminati & Sordi (2019), who endogenize it.…”

Labor-Augmenting Technical Change and the Labor Share: New Microeconomic Foundations

“…Additionally, such a relation is embedded at the aggregate level in a conventional wage share rather than labor-constrained classical growth model. Finally, Caminati and Sordi (2019) introduce costly endogenous technical change into a demandled growth model where capacity utilization is at its normal level in the long-run, which places their contribution within the so-called literature on the 'supermultiplier' (see for example Serrano, 1995;Allain, 2015;Freitas and Serrano , 2015). They do find that growth and labor productivity growth are wage-led in the long-run; but the short-run size of R&D investment does not depend on the wage share.…”

Demand‐led industrialisation policy in a dual‐sector small open economy

“…A number of subsequent papers endogenized autonomous spending. 1 The endogenous mechanisms that were proposed include autonomous consumption related to the accumulated wealth of the workers (Brochier & Silva, 2019;Nomaler, Spinola & Verspagen, 2021) and R&D investments (Caminati & Sordi, 2019).…”