Demanda y crecimiento económico

Abstract

Demand plays a dichotomous role on growth. On the one hand displaces savings and thus restricts the ability of the economy to finance investment, while on the other hand, encourages investment through the increased market capacity to absorb production. The stimulating effect of consumption competes with the financial restraint. This is a classic dilemma in economics, on which neoclassical growth theory seems to stress exclusively on the financial restraint side. A model of economic growth à la Ramsey is proposed as an alternative to examine the effects of including this dual effect of consumption. It is also developed a model à la Solow, which once parameterized, allows the exam of these three major hypothesis: The first is the neoclassical mechanism of causation taking saving as a trigger for growth through investment. In this respect, the bulk of the literature finds that growth explains savings (and investment), and not vice versa. The same result is found in an empirical econometric exercise of causality in the sense of Granger carried out for the Argentine economy in the last century. The second hypothesis is the role of foreign direct investment (FDI) in growth, for which neoclassical theory places high expectations, highlighting its financial contribution and its role as a channel for technology transfer. However, the results are far from satisfying these expectations. Empirical evidence finds it very difficult to corroborate this positive effects envisaged by theory. Often the impact is found to be negative. The review of the literature -and the empirical exercise carried out-, suggest that the positive impact of FDI on growth is far from automatic. The total impact of FDI can be splitted in its initial financial contribution ('flow' effect), and the 'stock' effect reflecting the impact of asset dividends, debt services between foreign firms and their home countries that trough reducing domestic demand, discourages investment and economic growth. For the case of the Argentinean economy, the econometric Granger causality evidence finds that the 'stock' effect is negative, that FDI 'replaces' domestic investment (rather than 'complements'), and that, instead, economic growth triggers both domestic investment and FDI. The third hypothesis is the idea of labor-diminishing returns that since Malthus prevails in neoclassical growth models. The literature reviewed, which splits the demographic impact into a positive one arising from labor force growth, and a negative one resulting from the non-labor force population growth, seems to contradict this hypothesis. In an panel data econometric exercise applied to the case of the EU, we found that once unfolded these two effects, population growth, including that generated by immigration, stimulates economic growth, particularly in the medium term. These results are consistent with the proposed demand-side model of endogenous growth, which includes a transmission mechanism that has economic growth as the trigger of savings, and also proposes that excess-demand, which stimulates capital formation and technical change, is determined positively by employment growth, and negatively by leaks from the economy arising from FDI stock.

Date of Award	10 Jan 2008
Original language	Undefined/Unknown
Supervisor	Josep Oliver Alonso (Director)