Analytical Aspects of Short-run Growth

Abstract

This paper studies the short-run and medium-run aspects of economic growth under two alternative frameworks. These are: (i) a demand-determined growth model with excess capacity having Keynesian features; and (ii) a full-capacity Harrod-Domar model modified to include autonomous consumption. While much of growth theory is about the long-run understanding contemporary growth experience requires application of short-run analysis. The analysis is applied to address the following questions, among others: (a) To what extent does a change in the rate of exponential growth signal a ‘structural break’? (b) What are the appropriate analytical definitions of consumption-driven growth and investment-driven growth? (c) What observable characteristics of a growth path help identify if growth (or a change in growth) is consumption-driven in contrast to its being investment-driven? The analysis brings out the relation between growth rates of autonomous consumption, investment and GDP, emphasizing the difference in conclusions in the two models.