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Growth led by government expenditure and exports: Public and external debt stability in a supermultiplier model

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  • Morlin, Guilherme Spinato

Abstract

The Sraffian supermultiplier model revealed the role of autonomous demand in economic growth. Nevertheless, the sustainability of growth requires the stability of the financial stocks behind autonomous demand. Growth led by government expenditure and exports is thus stable if both public and external debts are stable. In this paper, we assess the stability of this growth process in a supermultiplier model. The external constraint may appear as a restriction to external indebtedness, imposing an upper limit to growth. Nonetheless, the domestic autonomous expenditure can keep the economy distant from the external constraint. A fiscal policy rule is proposed to contain foreign indebtedness. Simulations support the analytical results, and compare the outcomes of the fiscal policy rule and a structural change policy. Altogether, the model provides stability conditions for growth in an open economy paying its international liabilities in foreign currency.

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  • Morlin, Guilherme Spinato, 2022. "Growth led by government expenditure and exports: Public and external debt stability in a supermultiplier model," Structural Change and Economic Dynamics, Elsevier, vol. 62(C), pages 586-598.
    • Handle: RePEc:eee:streco:v:62:y:2022:i:c:p:586-598
    DOI: 10.1016/j.strueco.2022.03.009
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    3. Akeem Rahaman & Scott Mark Romeo Mahadeo, 2024. "Constructing country-specific debt sustainability indices for developing countries," Working Papers in Economics & Finance 2024-01, University of Portsmouth, Portsmouth Business School, Economics and Finance Subject Group.
    4. Emboava Vaz, João, 2024. "Impacts of US interest rates on growth, income distribution, and macroeconomic policy space in developing countries: A SFC supermultiplier model," IPE Working Papers 228/2024, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    5. Dvoskin, Ariel & Torchinsky Landau, Matías, 2023. "Income distribution and economic cycles in an open-economy supermultiplier model," Structural Change and Economic Dynamics, Elsevier, vol. 64(C), pages 273-291.
    6. Cruz, Manuel Máximo & Gahn, Santiago José & Morlin, Guilherme Spinato, 2022. "State-owned and multinational enterprises partnership as an import substitution strategy: A narrative ARDL approach to the case of oil contracts in Argentina (1958–1962)," Structural Change and Economic Dynamics, Elsevier, vol. 63(C), pages 213-223.
    7. Ziesemer, Thomas H.W., 2024. "Linking the BOPC growth model with foreign debt dynamics to goods and labour markets: A BOP-IXSM-Okun model," Research in Economics, Elsevier, vol. 78(4).
    8. Jose A. Pérez-Montiel & Andreu Sansó & Oguzhan Ozcelebi & Riccardo Pariboni, 2023. "Autonomous and induced demand in the United States: a long-run perspective," Journal of Evolutionary Economics, Springer, vol. 33(4), pages 1237-1257, September.
    9. Hussain Rana Yassir & Xuezhou Wen & Hussain Haroon & Ahmad Ilyas & Irshad Hira & Malik Muhammad Yasir Hayat, 2024. "Firm Attributes and Government External Debt as Determinants of Corporate Short Debt Maturity in a Post-CPEC Scenario," Zagreb International Review of Economics and Business, Sciendo, vol. 27(1), pages 137-154.
    10. Pedrosa, Ítalo & Brochier, Lídia & Freitas, Fabio, 2023. "Debt hierarchy: Autonomous demand composition, growth and indebtedness in a Supermultiplier model," Economic Modelling, Elsevier, vol. 126(C).
    11. Marwil J. Dávila‐Fernández & Serena Sordi, 2024. "Thirlwall's law: Binding constraint or ‘centre‐of‐gravity’?," Metroeconomica, Wiley Blackwell, vol. 75(1), pages 52-82, February.

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    More about this item

    Keywords

    Sraffian supermultiplier; Thirlwall’s law; Demand-led growth; Public debt; External debt;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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