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Innovation, Unemployment and Policy in the Theories of Growth and Distribution

Edited by Neri Salvadori and Renato Balducci

Innovation, Unemployment and Policy in the Theories of Growth and Distribution increases our understanding about the more relevant economic determinants and policy aspects of the interdependence between economic growth and income distribution.
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Chapter 4: Consumption composition: growth and distribution

Davide Gualerzi


Davide Gualerzi 4.1. INTRODUCTION The main objective of this chapter is to begin to articulate the relationship between consumption composition and growth in the long run. In this attempt a central position is occupied by new products and innovative investment, ultimately refocusing the analysis of growth on effective demand. In fact, it is the lack of an elaboration of the theory of effective demand in the long run that can explain why the issue of composition has become so elusive to theoretical analysis and even to the recent literature on variety in consumption. Though a prominent issue in the macro literature, consumption spending is mostly treated in aggregate terms. When wages and employment are set, that is, when income distribution is determined, consumption follows. Moreover, it is widely assumed that supply will dominate in the long run, leaving room for demand only in the short run. The exception is the model of growth and structural change of Pasinetti (1981, 1993), which establishes a bridge between the effects of technological change and demand and, because of that, it must consider its structure as an essential aspect of the growth process.1 The questions raised by Pasinetti’s comprehensive study of structural dynamics indicate several possible directions of investigation. For one thing the model lays the ground for a dynamic theory of consumption. New products play an important role in it, but it is mostly hinted at, rather than developed, given the more general purposes of the study (see Gualerzi, 1996). They are nevertheless...

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