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Demand‐led growth with endogenous innovation

Mauro Caminati and Serena Sordi

Metroeconomica, 2019, vol. 70, issue 3, 405-422

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.

Date: 2019
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