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Autonomous Demand and the Investment Share

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dc.contributor.authorGirardi, Daniele
dc.contributor.authorPariboni, Riccardo
dc.contributor.departmentEconomics Department, University of Massachusetts Amherst
dc.contributor.departmentEconomics Department, Roma Tre University
dc.date2023-09-23T22:06:23.000
dc.date.accessioned2024-04-26T16:31:13Z
dc.date.available2018-11-26T00:00:00Z
dc.date.issued2018-01-01
dc.description.abstractThis paper looks at the effect of demand shocks on the investment share of the economy. Using panel data on 20 OECD countries, we show that the rate of growth of autonomous demand (exports, public spending and housing investment) is positively correlated with subsequent values of the share of business investment in GDP. By means of an instrumental-variables strategy, we confirm a positive effect of demand dynamics on the business investment share. We instrument autonomous demand with US demand for imports interacted with exposure to trade with the US, openness to trade of a country’s main export destinations, and military spending. A permanent 1% increase in autonomous demand growth raises the investment share by 1.5 to 1.9 percentage points of GDP in our preferred panel IV specification. Our results provide empirical support for the view that the influence of aggregate demand on capital accumulation can be a major source of hysteresis. Our results are inconsistent with the canonical New Keynesian 3-equations model, the Neo-Kaleckian model with flexible equilibrium utilization and Classical-Marxian growth models. A positive influence of autonomous demand on the investment share is instead compatible with demand-led models in which capacity adjusts to demand in the long-run.
dc.identifier.doihttps://doi.org/10.7275/13371711
dc.identifier.urihttps://hdl.handle.net/20.500.14394/22234
dc.relation.ispartofUMass Amherst Economics Working Papers
dc.relation.urlhttps://scholarworks.umass.edu/cgi/viewcontent.cgi?article=1256&context=econ_workingpaper&unstamped=1
dc.rightsUMass Amherst Open Access Policy
dc.source.issue2018-18
dc.source.statuspublished
dc.subjectHysteresis
dc.subjectInvestment
dc.subjectDemand-led Growth
dc.subjectCapacity Adjustment
dc.subjectSupermultiplier
dc.subjectEconomics
dc.titleAutonomous Demand and the Investment Share
dc.typearticle
dc.typearticle
digcom.contributor.authorisAuthorOfPublication|email:dgirardi@umass.edu|institution:Economics Department, University of Massachusetts Amherst|Girardi, Daniele
digcom.contributor.authorisAuthorOfPublication|email:riccardo.pariboni@uniroma3.it|institution:Economics Department, Roma Tre University|Pariboni, Riccardo
digcom.date.embargo2018-11-26T00:00:00-08:00
digcom.identifierecon_workingpaper/255
digcom.identifier.contextkey13371711
digcom.identifier.submissionpathecon_workingpaper/255
dspace.entity.typePublication
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