The impossible quartet in a demand led growthsupermultiplier model for a small open economy

Abstract

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.

JEL Classification: E12; E37; P10