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Autonomous and induced demand in the United States: a long-run perspective

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Abstract

This paper presents a long-run study of the relationship between autonomous and induced demand for the United States. Our exercise can be considered a contribution to the burgeoning literature revolving around autonomous demand-led growth models, which have displayed the potential to establish bridges not only within the post-Keynesian community, but also between post-Keynesian economics and other evolutionary and pluralistic approaches to economic growth. In particular, we study the long-run dynamic relationship between autonomous demand – which comprises R&D expenditures, government spending, exports and residential investment – and induced demand. Through a cointegration model with quantile-varying coefficients, we account for the possibility of changes in the relationship between the two variables and demonstrate that the long-run equilibrium relationship between autonomous and induced demand is robust to exogenous shocks and changes in the parameters.

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Notes

  1. For discussions about the theoretical consistency and empirical relevance of supermultiplier models, see also Pariboni (2016a), Portella-Carbó (2016), Dejuán (2017), Hein (2018), and Portella-Carbó and Dejuán (2019). It is important to notice that, in recent years, also authors coming from a Kaleckian theoretical tradition have developed analytical models whose main implications are analogous to those of the supermultiplier. See, e.g., Allain (2015), Lavoie (2016, 2017), Hein (2018), and Fiebiger and Lavoie (2019).

  2. The other part is financed out of debt or accumulated wealth.

  3. See also Cesaratto et al. (2003), Freitas and Serrano (2015), Girardi and Pariboni (2016, 2020), Pérez Caldentey and Vernengo (2017), and Palley (2019), where similar conceptualizations are adopted. It is, however, necessary to recall that autonomous demand-led growth models have been criticized by several authors, among which it is possible to mention Peter Skott, who questions the autonomy itself of autonomous demand, on the basis of the fact that also the latter, eventually, would be induced by output and income (Skott 2017). See also Nikiforos (2018).

  4. The interested reader can also refer to Girardi and Pariboni (2016, 2020) and Perez-Montiel and Erbina (2020) for a broader discussion about the rationale of including these demand components in autonomous demand.

  5. There is, however, a relevant difference between the work by Nomaler et al. (2021) and ours. In the former, the authors focus on the supply-side determinants of R&D, while we emphasize its demand-side nature, as an act of spending and as a component of aggregate demand.

  6. See also Deleidi and Mazzucato (2019, 2020). Consider, however, that in these works the demand component under the spotlight is public mission-oriented innovation spending, a concept more specific than and only partially superimposable to (public) R&D.

  7. This reflects the assumption, common in the supermultiplier-inspired literature, that induced demand is a linear function of GDP.

  8. We are aware that, for national accounting purposes, this demand component is included in investment, even though its nature is more akin to the purchase of a durable consumption good. See Pérez-Montiel and Pariboni (2022) for an empirical investigation of the role of residential investment as an autonomous growth driver in the US.

  9. Saikkonen (1992) and Saikkonen and Luukkonen (1997) demonstrate that the Johansen procedure consistently estimates the cointegrating vectors, even in the presence of regime switching.

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Funding

This work has been carried out thanks to the financial support of the research projects: (a) J.A. Perez-Montiel received financial support from PGC 2018-093896-B-I00 Mediterranean capitalism? Successes and failures of industrial development in Spain, 1720-2020 funded by Ministerio de Ciencia e Innovación (Madrid), MCIN/AEI/ 10.13039/501100011033; and by the European Regional Development Fund, “ERDF A way of making Europe”; (b) A. Sansó acknowledges financial support from Spanish Ministerio de Ciencia e Innovación under grand PID2020-114646RB-C43/MCIN/AEI/10.13039/501100011033.

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Correspondence to Jose A. Pérez-Montiel.

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Pérez-Montiel, J.A., Sansó, A., Ozcelebi, O. et al. Autonomous and induced demand in the United States: a long-run perspective. J Evol Econ 33, 1237–1257 (2023). https://doi.org/10.1007/s00191-023-00833-7

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