Post Growth and the North-South Divide: a post-Keynesian stock-flow consistent analysis | Working Paper

Dario Leoni, Andrew Jackson and Tim Jackson
CUSP Working Paper Series | No 38

Summary

Postgrowth economics has received increased attention in the last decade, in part because economic growth is seen to exacerbate environmental problems and in part because growth rates in advanced economies have been declining for over half a century. It has therefore been argued that the richest economies should deprioritise growth in GDP as a policy objective in order to make room for sustainable development in poorer countries. A key objection to this strategy is that the macroeconomic implications of a postgrowth transition in advanced countries on the economic and environmental conditions in the rest of the world have not yet been rigorously analysed. This working paper addresses that gap. Specifically, we describe a 2-region post-Keynesian stock-flow consistent macroeconomic model and use the model to simulate a unilateral postgrowth transition in one region (the ‘North’) while the other region (the ‘South’) pursues economic development. The postgrowth transition is enforced by introducing a cap on resources in the North. This is effective in stopping the growth in resource consumption but comes at the cost of higher inflation in the North and somewhat lower development in the South due to a reduction in international trade. The model is at this stage conceptual, rather than empirically calibrated, so these results must be seen as preliminary insights into the underlying problem. Nonetheless, the findings highlight the potential tension between economic globalisation and this form of postgrowth transition. We discuss the implications of these findings and suggest policies to mitigate adverse impacts on development in the South. 

This post also appeared on the CUSP website. Image: courtesy of Gajus / Canva.