Essays in Honour of A.P. Thirlwall
Edited by Philip Arestis, John S.L. McCombie and Roger Vickerman
Chapter 13: Models of Saving, Income and the Macroeconomics of Developing Countries in the Post-Keynesian Tradition
Valpy FitzGerald INTRODUCTION The ex post resolution of ex ante imbalances between saving and investment intentions lies at the heart of the Keynesian approach to macroeconomics, and also – albeit in a longer-term context – to the ‘classical tradition’ in development economics associated with seminal authors such as Kalecki, Kaldor and Lewis. In this latter context, the focus is on capital accumulation and growth on the one hand, and the relationship between functional income distribution and the reinvestment of profits on the other – a focus which defines Thirlwall’s own work in this field. His major contribution to modern development economics has been to preserve this classical tradition from the onslaught of neoclassical general equilibrium analysis and to show how Keynesian concepts still have empirical and policy relevance to industrialising countries. The key medium for communicating these ideas has probably been his textbook Growth and Development1 which has run through seven editions since 1972 and remains today not only the leading introductory ‘heterodox’ development economics text but also the leading textbook for UK undergraduates in this subject.2 Thirlwall divides savings theory into three categories.3 The first is the classical prior-savings model, under which he includes the current approaches of the World Bank and the International Monetary Fund, where saving is determined by income and financial incentives, and thus represents a constraint on investment (and thus growth) which can only be released by reduced fiscal deficits (‘crowding out’) or foreign capital inflows (‘external saving’). The second is the Keynesian model, particularly the absolute income...
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