The Impossible Quartet in a Demand Led Growth-Supermultiplier Model for a Small Open Economy

By Jose Luis Oreiro, Julio Fernando Costa Santos

PKES Working Paper 2215

May 2022

The aim of this paper is to investigate the long run sustainability of a growth path led by multiple non-creating capacity autonomous expenditures in a demand led-supermultiplier model for a small open economy. Using two different models the results show that it is impossible to have in the same model long-term economic growth driven by the non-capacity creating component of domestic demand, exogenous income distribution, long-run balance between productive capacity and aggregate demand and balance of payments equilibrium. Economic viability of the balanced-growth path demands growth to be led by exports, at least for small open economies.

Keywords: Post-Keynesian Economics, Growth and Distribution, Srafian Supermutiplier, Simulation Models

JEL classification: E12 E37 P10