A Kaldor–Schumpeter model of cumulative growth

Abstract

Abstract Taking into account the relevance of the Kaldorian and the Schumpeterian contributions to macroeconomic growth theory, this paper proposes a growth model that combines the insights of these two traditions while solving some of the most important limitations of the original Kaldor–Dixon–Thirlwall model. This model takes into account the main factors emphasised by the Kaldorian and the Schumpeterian literatures, while keeping the importance of both demand- and supply-side factors for economic growth. The model shows that higher research intensity can generate higher equilibrium growth, stressing the possibility that an increase in the growth rate of foreign output can exert a negative impact on the domestic economy, provided that the negative effect of higher foreign non-price competitiveness is larger than the positive demand effect. The proposed Kaldor–Schumpeter growth model was also transposed to a multi-sectoral setting that indicates that changes in the performance of a given sector affect the performance of the other sectors through inter-sector demand externalities by easing the balance-of-payment constraint.