Gallo, Ettore and Zamparelli, Luca (2025): Harrodian Instability and Induced Technical Change.
![]() |
PDF
MPRA_paper_125533.pdf Download (1MB) |
Abstract
This paper presents a demand-led growth model augmented with induced technical change to address the two Harrod's problems in growth theory. Building on recent developments in the supermultiplier literature, we investigate how both Harrodian instability problems can be resolved through two complementary mechanisms: (1) autonomous, non-capacity-creating demand components growing at an exogenous rate, and (2) endogenous technical change responsive to income distribution. While existing supermultiplier models show how autonomous expenditures stabilize demand-led growth, we integrate induced technical change into the determination of the natural rate of growth. The model achieves twin stabilization through the interplay of two stabilizing mechanisms: the supermultiplier and induced technical change. On the one hand, demand shocks are absorbed via adjustments in the investment share, allowing capital accumulation to align with the exogenously determined growth rate of autonomous expenditures. On the other hand, labor market imbalances trigger productivity adjustments that reconcile natural and warranted growth through changes in the wage share. This dual adjustment mechanism allows the system to sustain normal capacity utilization and stable employment rates, while preserving demand-led growth outcomes. The results suggest that incorporating induced technical change enhances the supermultiplier's capacity to address both of Harrod's instability problems within a unified demand-led framework.
Item Type: | MPRA Paper |
---|---|
Original Title: | Harrodian Instability and Induced Technical Change |
Language: | English |
Keywords: | Harrodian instability; Supermultiplier model; Induced technical change; Demand-led growth |
Subjects: | E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E12 - Keynes ; Keynesian ; Post-Keynesian E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21 - Consumption ; Saving ; Wealth O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O33 - Technological Change: Choices and Consequences ; Diffusion Processes O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O41 - One, Two, and Multisector Growth Models |
Item ID: | 125533 |
Depositing User: | Luca Zamparelli |
Date Deposited: | 02 Aug 2025 14:31 |
Last Modified: | 02 Aug 2025 14:31 |
References: | Allain, O. (2015). Tackling the instability of growth: a Kaleckian-Harrodian model with an autonomous expenditure component. Cambridge Journal of Economics, 39(5):1351–1371. Allain, O. (2021). A supermultiplier model of the natural rate of growth. Metroeconomica, 72(3):612–634. Barbieri Góes, M. C. (2024). An analysis of the patterns of economic growth in the US. Review of Political Economy, pages 1–36. 20/8/2024. Barro, R. J. and Sala-i Martin, X. (2004). Economic Growth. MIT Press, Cambridge, MA, 2nd edition. Blanchflower, D. G. and Oswald, A. J. (1994). The Wage Curve. MIT Press, Cambridge, MA. Carlin, W. and Soskice, D. (2006). Macroeconomics: Imperfections, Institutions, and Policies. Oxford University Press, Oxford, UK. Dutt, A. (2013). Endogenous technological change in classical-Marxian models of growth and distribution. In Michl, T. and Rezai, A., editors, Social Fairness and Economics: Essays in the Spirit of Duncan Foley. Routledge, New York, NY. Fazzari, S. M., Ferri, P. E., and Variato, A. M. (2020). Demand-led growth and accommodating supply. Cambridge Journal of Economics, 44(3):583–605. Freitas, F. and Serrano, F. (2015). Growth rate and level effects, the stability of the adjustment of capacity to demand and the Sraffian supermultiplier. Review of Political Economy, 27(3):258–281. Gallo, E. (2022). When is the long run? – Historical time and adjustment periods in demand-led growth models. Metroeconomica, 73(4):1155–1178. Gallo, E. and Barbieri Góes, M. C. (2023). Investment, autonomous demand and long-run capacity utilization: an empirical test for the Euro Area. Economia Politica, 40(1):225–255. Goodwin, R. M. (1967). A growth cycle. In Feinstein, C. H., editor, Socialism, Capitalism and Economic Growth: Essays Presented to Maurice Dobb, pages 54–58. Cambridge University Press, Cambridge, UK. Harrod, R. F. (1939). An essay in dynamic theory. Economic Journal, 49:14–33. Kennedy, C. (1964). Induced bias in innovation and the theory of distribution. Economic Journal, 74(295):541–547. Lavoie, M. (2016). Convergence towards the normal rate of capacity utilization in neo-Kaleckian models: The role of non-capacity creating autonomous expenditures. Metroeconomica, 67(1):171–201. Marglin, S. A. (1984). Growth, distribution, and inflation: A centennial synthesis. Cambridge Journal of Economics, 8(2):115–144. Nah, W. J. and Lavoie, M. (2019). Convergence in a neo-Kaleckian model with endogenous technical progress and autonomous demand growth. Review of Keynesian Economics, 7(3):275–291. Nomaler, Ö., Spinola, D., and Verspagen, B. (2021). R&D-based economic growth in a supermultiplier model. Structural Change and Economic Dynamics, 59:1–19. Okishio, N. (1961). Technical changes and the rate of profit. Kobe University Economic Review, 7:86–99. Palley, T. (2019). The economics of the super-multiplier: A comprehensive treatment with labor markets. Metroeconomica, 70(2):325–340. Serrano, F. (1995). Long Period Effective Demand and the Sraffian Supermultiplier. Contributions to Political Economy, 14:67–90. Serrano, F. and Freitas, F. (2017). The Sraffian supermultiplier as an alternative closure for heterodox growth theory. European Journal of Economics and Economic Policies: Intervention, 14(1):70–91. Serrano, F., Freitas, F., and Bhering, G. (2019). The Trouble with Harrod: the fundamental instability of the warranted rate in the light of the Sraffian Supermultiplier. Metroeconomica, 70(2):263–287. Setterfield, M. and Budd, A. (2011). A Keynes-Kalecki model of cyclical growth with agent-based features. In Arestis, P., editor, Microeconomics, Macroeconomics and Economic Policy: Essays in Honour of Malcolm Sawyer, pages 228–250. Springer, New York, NY. Taylor, L. (1991). Income distribution, inflation, and growth. MIT Press, Cambridge, MA. United Nations (2024). World Population Prospects 2024: The 2024 Revision. Department of Economic and Social Affairs, Population Division, United Nations, New York, NY. von Weizsacker, C. (1962). A New Technical Progress Function. German Economic Review, 11(3):248–265. Reprinted 2019. |
URI: | https://mpra.ub.uni-muenchen.de/id/eprint/125533 |