Supply and demand in Kaldorian growth models: a proposal for dynamic adjustment

Guilherme Magacho and Danilo Spinola

No 10, CAFE Working Papers from Centre for Accountancy, Finance and Economics (CAFE), Birmingham City Business School, Birmingham City University

Abstract: This paper analyses the dynamic adjustment of supply and demand in Kaldorian growth models. We aim at discussing how the growth rate of a country, given by demand constraints, adjust towards the growth rate given by the supply-side, and vice-versa, presenting the necessary conditions for those adjustments. Our main conclusion is that if there are no capital constraints, firms invest to maintain a constant desired level of capital utilization. Depending on specific conditions, however, an economy may face labour constraints, which would require an adjustment mechanism on employment. The Palley-Setterfield approach brings a possible reconciliation to supply- and demand- long-term growth rates. However, we must raise some considerations about the labour market in order to understand the characteristics of this approach. We draw from the critique by McCombie, in which employment adjusts immediately to guarantee equilibrium between supply and demand. We propose reconciliation between the Palley-Setterfield and the McCombie approaches, presenting a model focused in a labour market adjustment, in which both types of adjustments represent extreme cases, discussing the existence and the characteristics of intermediate cases.

Keywords: economic adjustment; demand-led growth; natural rate of growth; Kaldorian growth models (search for similar items in EconPapers)
Date: 2021-01-24
New Economics Papers: this item is included in nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.open-access.bcu.ac.uk/10787/1/20210124 ... tment%20-%20Copy.pdf

Related works:
Working Paper: Supply and demand in Kaldorian growth models: a proposal for dynamic adjustment (2020)
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:akf:cafewp:10

Access Statistics for this paper

More papers in CAFE Working Papers from Centre for Accountancy, Finance and Economics (CAFE), Birmingham City Business School, Birmingham City University Birmingham City Business School, The Curzon Building, 4 Cardigan Street, Birmingham, B4 7BD, United Kingdom. Contact information at EDIRC.
Bibliographic data for series maintained by Research Publications Librarian ().