ABSTRACT OF PAPER
Title: Autonomous demand and economic growth: some empirical evidence
Author: Girardi Daniele, Pariboni Riccardo
The notion of long-run effective demand represents one of the widest rifts between different schools of thought in economics. Categorically ruled out by mainstream neoclassical scholars, it constitutes the core concept of some heterodox contributions to growth theory. According to the Sraffian-Supermultiplier model, in particular, economic growth is driven by the autonomous components of aggregate demand. Firstly introduced by Serrano (1995), the model provides an extension to the long-run of the Keynesian Hypothesis (Garegnani, 1992). Unlike the Cambridge equation-based models (Robinson, 1962), the SraffianSupermultiplier does not entail any necessary relation between the rate of growth and normal income distribution. Moreover, it is built upon the integration of the traditional multiplier with the flexible accelerator but does not necessary engender Harrodian Instability, differently from the Hicksian Supermultiplier’s (1950) case. After discussing the theoretical debate that has sprung up, even among non-neoclassical authors, regarding the sign of the relation between autonomous demand and output growth, this paper tests empirically some major propositions of the Sraffian-Supermultiplier model. For this purpose, we calculate time-series of the autonomous components of aggregate demand and of the supermultiplier for the US, France, Germany, Italy and Spain and describe their patterns in recent decades. We observe that changes in output and in autonomous demand are tightly correlated both in the long and in the short-run. Moreover, European countries experienced a strong decrease in the supermultiplier in recent decades, while in the US it has remained broadly stable and significantly higher than in the other four countries of the sample. Consistently with theory, we find that where the supermultiplier is more stable, i.e. the US, autonomous demand and output are cointegrated. Besides, the estimation of a Vector ErrorCorrection Model (VECM) reveals short-run simultaneous causality between autonomous demand and output. We propose an explanation based on the idea that autonomous demand is socially and historically determined. We then estimate the multiplier of autonomous spending through an instrumental variables approach, finding that a one dollar increase in autonomous demand raises output by 1.4 dollars over four years. A further implication of the model that we test against empirical evidence is that accelerations in autonomous demand growth tend to be followed by increases in the investment share. Through Granger-causality tests, we find that this is the case in all five countries.
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