The first type of theory (labelled neo-Keynesian) was, proposed by Joan Robinson (1956, 1962) and Kaldor (1957 and 1961). economic system does not tend necessarily to full employment and that the, different components of aggregate demand may affect the rate of growth of, the economy. difference equations, deriving equation (67) as the steady growth solution. been considered alternative (see Moss, 1978, p. 306; Vianello 1986, p. 86; Nell , 1988; Pasinetti, 1988; Pivetti, 1988; Wray, 1988; Abraham–Frois, 1991, pp. Have you ever wondered how we could navigate through that stressful season in our history? (1936), ‘The General Theory of Employment, Interest and. Abstract. Trade’, in G. Rampa, L. Stella, A.P. It had jeopardised political stability an, a new political approach and of a new economic theory able to clarify, whether market forces can lead the economy towards full employment or. And the degree of, their success will depend on how well they will be able to forecast the outputs which it will, be convenient for them to produce. The economic meaning of equation (73) is that a poor trade performance, constrains a country to grow at a slower pace than that allowed by the growth, of internal demand and by resource availability, grow quicker than exports, thus worsening the country’s trade account and, forcing policy-makers to intervene. (Mass. In his 1939 essay on dynamics, again stimulated by the, Harrod focused instead on the equilibrium paths of the economy and on the, factors determining the ‘warranted’ and the ‘natural’ rates of growth. 26. Equation (4) assumes that the rate of interest depends on the conduct of, monetary policy, which, according to Harrod, operates by stabilising this rate, substitution between factors of production. This new position was clearly presented in Harrod (1964 and 1973), where he also recalled that the conduct of policy is difficult owing to the, complexity of the objectives to be achieved (Harrod, 1964, pp. In the spectrum of countries ranging from individualism to socialism, the U.S.A. , and allows one to calculate the value of, A second group of theories (labelled Kaleckia, ) a closed economy with no government intervention; (, ) homogeneous firms. The analysis considers a government sector with a balanced budget and an autonomous and non-linear investment function, interpreted along a Kaleckian and a Classical-Harrodian line. For a summary account of this class of models, see. exchange rate devaluations prove, ineffective, the balance of payments adjustment takes place through internal. The normal degree of capacity utilisation, by entrepreneurs, and on which, therefore, they base their investment decisions about the. The way in which distribution is in fact determined, propensities differ between classes. is the commodity market equilibrium condition for an open, ), the rate of change of income simply reduces, are not determined. In this case, the gold, outflows would cause ‘real’ effects, and a poor trade performance may. The presence of Government debt and the interest rate in equation (7), raises the problem of the relationships between growth and di, between monetary and fiscal policy. 31–45). Empirically testing the model, we evaluate why different growth regimes may appear in the 20 Italian administrative regions. Harrod (1939, pp. In, the evidence addressed to the Macmillan Co, advocate protectionism as a remedy against recession, a provocative, 7). opposite interpretation, see Eisner, 1958, Asimakopulos and Weldon, 1965, In opposition to the first view, Young (1989, pp. and M.N. are price and income elasticities respectively. These are the approach proposed by Kaldor and, Pasinetti in their theory of growth and d, rather than the wage rate, as the independent variable in the classical theory. Domar integrated in their work, thus forming a Keynesian theory of economic growth. Kaldor, N. (1957), ‘A Model of Economic Growth’, Kaldor, N. (1958), ‘Monetary Policy, Economic Stability and Growth: A, Memorandum Submitted to the Radcliffe Committee on the Working of, Kaldor, N. (1961), ‘Capital Accumulation and Economic Growth’, in F. Lut. He developed the famous growth accounting approach. Chick, V. (1995), ‘Is there a Case for Post Keynesian Economics?’, Ciampalini, A., Vianello F., (2000), ‘Concorrenza, Accumulazione del. I, recognised that, if the warranted rate was not equal to the natural rate – and there is no, reason why it should be – difficulties would inevitably arise. Kaldor’s writings also hint at the factors affecting the parameter, depends on the quotas and elasticities of the various components of domestic, consumption is influenced by productivity growth through the introduction. Moving on from the idea that the economic system is stable and, that negative influences on fluctuations only come from monetary and credit, factors, attempts were made to identify a ‘neutral’ policy, i.e. Something had to be done and classical economic theory at that time offered no solutions. In some more recent contributions (Moreno Brid, 1998–, 99, McCombie and Thirlwall, 1999), however, the use of equation (72) has, been considered inappropriate for a steady-state analysis without imposing, any restriction on the evolution path of foreign capital infl, run. interest constant. 52 BIS Papers No 65 1. The British economist, John Maynard Keynes, initiated what we refer to as Keynesian economics in the course of the 1930s in the wake of the Great Depression. In an early stage, the. written evidence of this critique is dated 1942. Keynes looked forward to a rise in government remuneration and lesser taxes to provoke demand and take the nation’s economy out of the great depression. It shows many, similarities with the views proposed by Harrod and the rest of Keynesian, tradition on the role of Government policy. The debate has examined a large number of, cases, showing when the Cambridge equation holds and confirming the. It is useless to refine and. As the income elasticity of the, demand for manufactured goods, due to Engels’ Law, is higher than income, elasticity of the demand for primary goods, it would be, goods. Thirdly, for Kaldor , monetary policy is the appropriate tool against t, fluctuations of the economy, while it is advisable to use fiscal policy to, pursue the long-range objective of sustained growth. Harrod’s seminal work on growth theory was conceived as an attempt, extend Keynes’s analysis. Harrod, R.F. Sraffa‘s critique of the, neoclassical theory of capital had not yet been presented. 66–7). ): A Keynesian Solution to the “Pasinetti Paradox”’. validity of the Cambridge equation by introducing into the analysis the Ricardian. The Action aims at developing a more sophisticated modelling of the EU visualised as an evolving trade network with a specific topology determined by the number and strength of national, regional and local links. Some confirm instability, while others either eliminate it or make it, conditional on certain actual circumstances. and in particular the normal rate of profits, is independent of accumulation. The severity of the Great Depression had changed this, situation. 55; and Panico, 2001, pp. Harrod (1972), Houthakker, H. and S. Magee (1969), ‘Income and Price Elasticities in. We must start with some generality however imperfect. Capitalists do not work: they earn their income through t, returns of their wealth. To ‘release’ monetary policy from this task the British, competitive performance in overseas markets had to be improved, In an economy subject to money contracts and customs more or less fixed over an, appreciable period of time, where the quantity of domestic circulation and the, domestic rate of interest are primarily determined by the balance of payments, as, they were in Great Britain before the war, there is no orthodox means open to the, authorities for countering unemployment at home except by struggling for an, export surplus and an import of the monetary metal at the expense of their, The idea that the trade performance of a country may affect its level of, activity was restated by Harrod in his 1933, Keynes, Harrod analyzed the case of an economy with sticky wages, where, the gold outflows caused by a trade deficit cannot affect relative prices, so, that the ‘classical’ adjustment process does not work. Growth and Personal Distribution’, in G. Mongiovi and F. Value, Distribution and Capital, Essays in Honour of P. Garegnani, Panico, C. (2001), ‘Monetary Analysis in Sraffa’s Writings’, in T. Cozzi and. : Harvard University Press. The second i. the transposition to the long run of the so-called ‘paradox of thrift’, according to which an increase in the propensity to save induces a reduction, in the rate of growth and in the equilibrium rate of p, differentiating expressions (25) and (26) with respect to, and (24), taking into account the equilibrium condition, Lower levels of the wage rate correspond to higher accumulation. Introduction John Maynard Keynes (1883‐1946) completed the General Theory of Employment, Interest, Kregel, J.A. ‘New’ growth theory, or endogenous growth theory (see Romer, 1986; Lucas, 1988) is also supply-orientated — in which there are no demand constraints, either internal or external. It is sometimes argued that more advertising raises consumption which in turn stimulates output and so economic growth. (1998), ‘Accumulation of Capital’, in H.D. 44, 61, 179). (1978), ‘The Post Keynesian Theory of Income Distribution in t. Nell, E. (1985), ‘Jean Baptiste Marglin: A Comment on “Growth, Nell, E.J. If one, assumes a given mark-up in each region and given and equal values of, Owing to its ‘aggregate’ structure, the model (63)–(66) neglects the role, of the sectoral composition of the economy and, therefore, it does not, adequately depict the richness of Kaldor’s views on growth, based on the, idea that the productive structure affects the overall rate of growth of, productivity. that the rate of interest tends to show some rigidity, since it. When the constraint, binding, firms cannot expand production to accommodate further rises in. The aim of this paper is to show that concepts such as growth regime, external constraints and financialization, which are very common in many Post Keynesian studies on growth, are compatible and complementary. We test this hypothesis using annual German data expressed in terms of GDP for the period 1950-2000. Progress in neo-classic and keynesian theory has led to unemployment analysis as «Job Search» or «Classic and Keynesian unemployment». profit and thus restore the incentive to invest (Kaldor, 1958, p. 138). This, is to avoid the permanent loss of market share owing to the temporary inability to fulfil, unexpected demand. 141–2). Harvey (eds), Foundations of International Economics. economics, raised by authors like Solow, Backhouse, Dornbusch, Fisher, Felderer and. According to Phelps Brown (1980, pp. degree the education of one‘s children is subvented by the public authorities’. This is important because mainstream growth theory still largely ignores the balance of payments. Conversely, a profit-led growth regime, characterised, responsiveness of effective demand to changes in distribution, Growth is enhanced by increases in the profit margin because the negative, effect of changes in the wage share on demand is more than compensated by, the inducement to invest caused by lower costs (lower wage rates). Space forbids an application of this method of analysis to the successive phases of, the trade cycle. Essays on Harrodian Themes. So, S = sY where s equals the average and marginal propensity to save. Macroeconomic Analysis’, in E. Nell and W. Semmler (eds), Amadeo, E.J. This equation can be used to describe the evolution of the rates of growth of, different countries or of different regions within the same country. Marglin (1984a, 1984b) solved this type of overdetermination by introducing in the analysis, a new variable, the rate of inflation, depending on the discrepancy between. 49. demand, the pressure of demand upon productive capacity may raise the, capacity growth rate up to the ceiling represented by equation (73), According to this approach, indeed, capital and labour availability does not, constrain growth, being to a large extent ‘endogenous’ to the economic, The theoretical relevance of equation (73) lies in, simple and attractive explanation of why growth rates differ, countries. As a consequence, since, an analysis, similar to that of Dixon and Thirlwall (1975), in order to study the movements, Kaldor (1966, p. 147) assumes that the differences in the rate of change of money wages of, different regions do not counter-balance the reduction in costs due to the different rate of, 46. If the rate of interest were higher than [the level that keeps investment going], the, process of accumulation would be interrupted, and the economy would relapse, into a slump. a similar variation in the rate of profit. The paper is organised as follows. capital accumulation through changes in the degree of capacity utilisation. costly use of overtime work and night shifts or shifts involving unordinary hours or days; 32. His aim was to, point out that competitive market forces may widen the gap between, monetary and credit factors, which had been underlined by the literature up, to that time. In th. Nor can such a treatment be found in other literature of that, time. demand deflation, which slackens the pace of growth (Thirlwall, 1979, pp. The maximum rates of, advance or recession may be expected to occur at the moment when the chase is, Moreover, in the subsequent years, Harrod (1948, p. 99) first claimed that he, was reluctant to enter the field of the dynamic analysis of disequilibrium. In this case, The total national income is derived from the sale of goods at home, If the country spends on imported commodities a stable fraction, substituting (61) in (60) and equating (5, The link with Keynes’ insights into the in, domestic prosperity is straightforward: when deteriorat, performance of a country, whether a reduction of exports or an increase in, the import propensity, occurs, the commodity market equilibriu, through a reduction of output. the previous period expected rate of growth; He assumed that, along the warranted equilibrium path, and the expected rates of growth are equal, Equation (3) recognises the possibility of, but considered that this kind of substitution. 24. In what follows, we mainly focus on the role of demand, in the growth process, paying less attention to other equally relevant aspects of his vision of. Ramsey‘s analysis of saving is underlined by Asimakopulos and Weldon (1965, pp. Harrod, R.F. On the other hand, permanent variations in the interest rate tend to be more effective in causing, similar variations in the rate of profit than in changing the capital–output. The Evolution of Macroeconomic Theory and Modelling along the last fifty years Abstract An outline of the evolution from the birth up to present days of the macroeconomics is laid out, its emergence during the thirties, then the period of the domination of the Keynesian macroeconomics of the years 1950 to 1970. theory of growth which the Oxford economist had proposed since 1939. pages of my first “Essay” I did recognise that there were two distinct problems of policy, the long-term one of bringing the warranted rate into line with the natural growth rate. with the State in the analysis of steady growth conditions. ): a. Keynesian Solution of “Pasinetti‘s Paradox”: Comment’. Dutt, A.K. Fourthly, when he, advocated fiscal policy, Kaldor referred to variations in the tax rate, rat, than to variations in the level of Government expenditure. Harrod (1973, p. 20) also clarifies that ‘what each person chooses in regard to saving is, governed by various institutional arrangements, which differ from country to country and, from time to time. The following equations can, ) holds. In 1939 Harrod claimed that both fiscal policy and variat, term interest rate have to be used to pursue this long-range objective, adding, that the latter are more appropriate than the former to this aim. In 1972 Kaldor further integrated Young’s analysis with the Keynesian principle of effective, demand, examining the role played by the demand for investment and focusing on the, conditions allowing self-sustained growth. and A.P. attributed to distributive shares in restoring equilibrium conditions. Savings determine investment and aggregate demand equals aggregate supply. Kurz, Hamouda, O. and G. Harcourt (1989), ‘Post-Keynesianism: from Criticism to. The heroic entrepreneurs of Schumpeter are resurrected, only slightly less heroically, in The General Theory (1936) of J.M. Harrod, R.F. 1. Context: a Post Keynesian View’, in J. Deprez and J.T. One of Bert Brecht’s Geschichten vom Herrn K. goes like this. Many will agree that one of Kaldor’s most outstanding theoretical contributions was his theory of growth and distribution, which he illustrated by means of models for the years 1957–62.1 His interest in the matter did not end with this period, however, even though his subsequent research was not simply a continuation of his earlier work but revealed a change of view. If the former. and S.G. Winter (1974), ‘Neoclassical vs. 229–32). Harrod admitted the existence of, was low, following the results reached by the Oxford Research Group, in, The study of the ‘warranted’ rate was for Harrod a preliminary part of the, analysis of the dynamic behaviour of the economy, which in 1939 was, The first step dealt with the forces that start to operate as soon as. 137–8), A monetary policy causing unstable interest rates raises the long-term rate. The way in which it is closed differentiates the. and S.G. Winter (1977), ‘In Search of a Useful Theory of, Panico, C. (1992), ‘Un confronto tra i modelli macroeconomici finanziari di, Tobin e quelli di derivazione Kaldoriana’, in B. Jossa and A. Nardi, Panico, C. (1993), ‘Two Alternative Approaches to Financial Model, Panico, C. (1997), ‘Government Deficits in the Post Keynesian Theories of, Panico, C. (1999), ‘The Government Sector in the Post Keynesian Theory of. equations (30)–(35) are univocally determined: Note that the paradox of thrift is preserved, as shown by differentiating, expressions (38) and (39) with respect to. If we also assume that a country cannot finance its trade deficit through, 1 (McCombie, 1998, pp. According to Moreno Brid (1998–99), international credit institutions, impose on developing countries borrowing restrictions based on some index, of their expected ability to repay the foreign loans. See Harrod (1948, pp. Thirlwall (1975), ‘A Model of Regional Growth-Rate, Dutt, A.K. In what follows an, attempt will be made to do so. interest rates, in turn, make the management of Government debt difficult. According to Young, in these essays, some of which were never published, Harrod dealt with a problem that was central to Keynes‘s and other works of, the time. This, study represented ‘a preliminary attempt to give an outline of a “dynamic”, theory’ (Harrod, 1939, p. 254) and ‘a necessary propaedeutic to trade–cycle, In the most simplified case, that of an economic system without Government, intervention and closed to non-residents, this condition, equality between saving and investment decisions. The classical economists … Higher long-term. Are Kaleckian models relevant for the long run? This description was considered by Harrod (1939, pp. Keynes argued that inadequate overall demand could lead to prolonged periods of high unemployment. as the main precursors of modern growth theory. to a level considered by investors too high to keep accumulation going. Thoughts on Marx, Kalecki and Sraffa’, in M. Sebastiani (ed. ), Competition: Essays in Honour of Edward Chamberlain. Eatwell, M. Milgate and P. Ricoy, C. (1998), ‘Cumulative Causation’, in H.D. 178 and 191; 1973, p. 75), raises the problem of the links, between the theory of growth and that of distribution, since it was associated. 2These were not the only objections to Keynesian theory, the only sources of dissatisfaction. (1993), ‘Income Elasticities of Exports and Imports: a Re-. of new products of large consumption (Kaldor, 1966, p. 113; 1981, p. 603; and Rowthorn, 1975, p. 899). The first is, that distribution and growth are simultaneously determined. capital goods (Kaldor, 1966, pp. 300 and 308–9 fn. The data imply that the immediate impact of more advertising on consumption is positive. Consequently, equation (34) has to be replaced, By differentiating expressions (46) and (47) with respect to, The sign of the derivatives (48) and (49) depends on the parameters of the, model. The more a country can rely on a large capital goods sector, the, lower will be the elasticity of imports, the highe, stimulating the effect of a given rate of change of exports. While Keynes’s approach, which ignored the effect of this increment to the capital stock and concentrated on the effect of investment on the level of income through the multiplier, was adequate for analysis of the short run, it was clearly deficient for the long run. Innovative Growth Theory of Schumpeter 1911 Keynesian Theories 1930s Post-Keynesian (Neo-Keynesian) Theories 1950s Neoclassical Theories and Exogenous Theory of Robert Solow 1950s-1960s Endogenous Growth Theories 1980s-1990s Source: Author¶s representation 1. dissertation, University of Naples ‘Federico II’. For the EU regions this is shown by the deep differences within and across nations. and its rate of change (Serrano, 1995; Park, 2000; and Barbosa–Filho, suggests the adoption of empirical and historical analyses, which are case-, specific, in order to identify the influence of the various components of, demand in different historical phases (see Garegnani, 1992; Ciampalini and, Vianello 2000; and, for an example of historical analyses, Garegnani and, The analysis of the influence of the external components of demand is. limits of validity of the dual and the Pasinetti theorem. conclusion that Steedman had previously reached. Only the former problem is known t, occupy a central place in the original development of the post Keynesian. 912–3; 1973, pp. High quotas of investment to, output and of the capital goods sector in the productive structure enhance, productivity changes, which, in turn, improve the international performance. Other contributions to the study of the role of the external component of, aggregate demand in growth theories can be found in the 1960s with, Kaldor’s work on growth rate differentials, where this analysis was. , the economy suffers inflationary pressures. During times of recession (or “bust” cycles), the theory prompts governments to lower interest rates in a bid to encourage borrowing. But even in that country, ‘monetary’ and ‘fiscal’ policies are regarded as legitimate weapons of, government, including the central bank. I suggested, that the long-term interest rate might be used to make the warranted rate adhere more closely, to the natural rate, while “public works” (nowadays “fiscal policy”) and the short-term rate, of interest should be used to deal with short-term deviations. From (36), in fact, Note finally that, when the wage rate exceeds the value, Kaleckian analysis becomes overdetermined. growth theory began to be consolidated in t extbooks, including those of Burmesiter and Dobell (1970)and by Henry Wan (1971) , also an MIT Ph.D. Solow’s 1969 Radcliffe Lectures (published in 1970 as the first edition of his Growth Theory – An Exposition ) To make up for this failure, in 1979 Thirlwall worked. assumptions about the other factors involved tend to soften the blow (Sen, 1970, Already in 1939, however, Harrod had stated that his analysis did not give a, complete account of the problem, suggesting some lines along which a. dynamic analysis of the behaviour of the system can be developed. A man who had not seen Herrn K. for a long time greeted him with: ‘You haven’t changed at all!’ ‘O’ said Herr K. and grew pale. Nell, Kurz, H.D. as t, objective that the long-term policy has to pursue. The New Economic Geography approach, which was initiated by P. Krugman in the early 1990s, describes economic systems as very simplified spatial structures. Yet Harrod (1939, p. 276) made some reference to the influence of the interest rate on the, of using Ramsey‘s intertemporal approach to on which to base this part of his. 278–9 and 292; 1964, pp. When this occurs a higher value of, more intense effect of a given rate of growth of exports come about. referred to an inverse relationship between, assumption of decreasing marginal returns was generally accepted. Access scientific knowledge from anywhere. By, reconstructing the content of a Keynesian approach to growth and describing, to underline the wealth of this tradition. It finds that its level is among the lowest in the region, notwithstanding Mexico´s rather privileged position in terms of labor productivity. Government intervention on growth, be it a change in taxation or in expenditure, through its. 38. These are assumed to be independent of saving decisions, and to have a dominant influence on the economy. A central feature of Keynesian theory is the importance which is attached to entrepreneurial investment decisions. 912–13; 1973, pp. (1960), ‘A Mathematical Formulation of the Ricardian, Pasinetti, L.L. possible to envisage two cases. To re-assign a role to demand the neo Ricardian literatu, routes. The previous recessions had not led the economy too far from full, employment, nor had they cast doubts on the belief that the economy is able, to return to it. This, tends to worsen the international performance of the economy. (SNIP 2004 = 0.70; Gev13 Imputed AIS = 0.49) In this work we first model the role of demand- and supply-side factors (labour market adjustment, productive efficiency) in explaining economic growth. adjustments may no longer be sufficient to assure balanced trade. in North Dakota was $33,034 in 2006, up from $32,053 in 2005. 1 UK Post Keynesian Study Group. The state’s population decreased by 6,333 people from 2000 to 2006, and is projected to decrease to 620,777 by 2025. Consumption, in turn, Granger-causes GDP growth. Marglin, S.A. (1984b), ‘Growth, Distribution, and Inflation: McCombie, J.S.L. It is the latter difference that the present study will try to highlight, disentangling it from the former. Kaldor, N. (1970), ‘The Case for Regional Policies’, Kaldor, N. (1971), ‘Conflicts in National Economic Objecti, Kaldor, N. (1972a), ‘Capitalism and Industrial Development: Some Lessons. Reprinted in R.F. L'objet de cet article est la construction de la théorie de Keynes, envisagée comme une structure composée de différents modèles, généraux et de base, qui se déduisent les uns des autres. PDF | On Jan 1, 2010, Heinz D. Kurz and others published The post-Keynesian theories of growth and distribution: A survey | Find, read and cite all the research you need on ResearchGate He talked about a "somewhat comprehensive socialization of investment" and the state's taking "an ever greater responsibility for directly organizing investment."