Financial adjustment as a driver of growth model change: a balance-sheet approach to comparative political economy

Lukas Spielberger and Dustin Voss

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Growth model theory has turned the focus of comparative political economy scholars on the demand drivers of economic growth. But while its proponents emphasize the variety and inherent instability of growth models, research so far has been more concerned with the emergence and coherence of stable growth models than in the process of change. We argue that growth model change can be understood as a process of financial rebalancing on the level of institutional sectors. When an overindebted sector is forced to deleverage, a politically contested process emerges over the path of adjustment. We derive various ways in which each sector can contribute to this process of financial adjustment, which we conceptualize as the activation of macroeconomic ‘compensation valves’. This process shapes the trajectory of economic performance during financial crisis and determines whether a new feasible growth model can emerge in its aftermath. We apply our analytical lens in a comparative case study of Germany and the Netherlands during the Great Recession. We conclude that future research on growth models should more explicitly problematize the ability of political economies to adapt to financial instability.

Keywords: balance sheet analysis; financial crisis; Germany; growth models; instability; Netherlands; Balance sheet analysis; Instability; Growth models; Financial crisis (search for similar items in EconPapers)
JEL-codes: E00 G00 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2022-08-03
New Economics Papers: this item is included in nep-acc, nep-fdg, nep-gro and nep-pke
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Published in Comparative European Politics, 3, August, 2022. ISSN: 1472-4790

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