Harrodian Instability and Induced Technical Change
Ettore Gallo and
Luca Zamparelli
MPRA Paper from University Library of Munich, Germany
Abstract:
This paper presents a demand-led growth model augmented with induced technical change to address the two Harrod's problems in growth theory. Building on recent developments in the supermultiplier literature, we investigate how both Harrodian instability problems can be resolved through two complementary mechanisms: (1) autonomous, non-capacity-creating demand components growing at an exogenous rate, and (2) endogenous technical change responsive to income distribution. While existing supermultiplier models show how autonomous expenditures stabilize demand-led growth, we integrate induced technical change into the determination of the natural rate of growth. The model achieves twin stabilization through the interplay of two stabilizing mechanisms: the supermultiplier and induced technical change. On the one hand, demand shocks are absorbed via adjustments in the investment share, allowing capital accumulation to align with the exogenously determined growth rate of autonomous expenditures. On the other hand, labor market imbalances trigger productivity adjustments that reconcile natural and warranted growth through changes in the wage share. This dual adjustment mechanism allows the system to sustain normal capacity utilization and stable employment rates, while preserving demand-led growth outcomes. The results suggest that incorporating induced technical change enhances the supermultiplier's capacity to address both of Harrod's instability problems within a unified demand-led framework.
Keywords: Harrodian instability; Supermultiplier model; Induced technical change; Demand-led growth (search for similar items in EconPapers)
JEL-codes: E12 E21 O33 O41 (search for similar items in EconPapers)
Date: 2025
New Economics Papers: this item is included in nep-hme and nep-pke
References: Add references at CitEc
Citations:
Downloads: (external link)
https://mpra.ub.uni-muenchen.de/125533/1/MPRA_paper_125533.pdf original version (application/pdf)
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:125533
Access Statistics for this paper
More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().