The Nature of Economic Growth
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The Nature of Economic Growth

An Alternative Framework for Understanding the Performance of Nations

A. P. Thirlwall

This concise book, by one of the leading scholars in development economics, has been developed from a series of lectures given to masters students and will serve as an excellent introduction to the principles of growth and development theory.
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Chapter 4: A Demand-Oriented Approach to Economic Growth: Export-Led Growth Models

A. P. Thirlwall


4. A demand-oriented approach to economic growth: exportled growth models In Chapter 2 it was argued that ‘new’ growth theory is an improvement on old (neoclassical) growth theory in the sense that it can explain why we do not observe convergence in the world economy, but ‘new’ growth theory is still open to the same criticism as old growth theory; that it is supply-oriented. Moreover, ‘new’ growth theory is not the only model in town to explain divergent trends in the world economy. In neoclassical theory, output growth is a function of factor inputs and factor productivity with no recognition that factor inputs are endogenous, and that factor productivity growth may also be a function of the pressure of demand in an economy. In practice, labour is a derived demand, derived from the demand for output itself. Capital is a produced means of production, and is therefore as much a consequence of the growth of output as its cause. Factor productivity growth will be endogenous if there are static and dynamic returns to scale. As a starting point for the analysis of growth, therefore, it would seem just as sensible, if not 52 Thirlwall 02 chaps rprnt 52 28/6/07 15:02:04 A demand-oriented approach to economic growth 53 more so, to take a (Keynesian) demand-oriented approach to growth and ask what are the major constraints on demand, and assume that demand constraints generally bite long before supply constraints become operative. In static macro theory, students are taught that national...

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