Exploring the Supply Side of Kaldorian Growth Models

Abstract

Recent Kaldorian growth models emphasize the need to reconcile the demand-led actual rate of growth and the potential rate of growth. This issue is revisited in light of criticism suggesting it is a “red herring.” An explicit model of the supply side is used to show that, in a mature economy, it is unlikely that steady-state, demand-led growth will always be automatically accommodated by the supply side. The conclusion reached is that attention must, therefore, be paid to the possible emergence of supply constraints on growth, and the implications thereof for steady-state, demand-led growth models.

Keywords: demand-led growth, potential rate of growth, natural rate of growth, Kaldorian growth models

JEL Classification: E12, O41