A Historical Approach to Demand-Led Growth Theory

  • Matthew Smith


The central purpose of this chapter is to construct an analytical framework for explaining growth in concrete terms by reference to history consistent with the view that economic growth is fundamentally determined by the growth in aggregate demand.1 As based on the Keynesian principle of effective demand, a demand-led theory of growth supposes that the level of aggregate output is determined in the long run by aggregate demand in which saving endogenously adjusts to autonomous demand through changes in income and output associated with the adjustment of productive capacity to aggregate demand. In this approach it is the growth in demand which determines the growth in output and the rate of capital accumulation in which it is supposed there is no technological constraint on output adjusting to demand growth. Key factors in explaining growth, notably, technical progress, are therefore conceived to contribute to economic growth through their effect on the growth in demand. From this standpoint, growth is a complex process, entailing structural change of the economic system, such that it can only be plausibly explained in concrete terms by reference to social, politico-institutional and technological factors. All these factors are seen to have an historical dimension in explaining growth.


Capital Stock Capital Accumulation Aggregate Demand Capacity Utilisation Growth Path 
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  • Matthew Smith

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