Keynesian Growth Theory in the 21st Century

Abstract

This paper examines the future of Keynesian growth theory in terms of its relevance, prospects and likely characteristics. To do so, it first defines what it means by Keynesian growth theory, by focusing on the long-run role of aggregate demand, and briefly reviews short- and long-term changes in the world economy to argue that the relevance of Keynesian growth theory will increase in the 21st century. The paper then examines three specific models as examples of possible relevant Keynesian growth models. One of these features endogenous technological change and government investment, a second analyzes the interaction of animal spirits and financial fragility, and a third examines the determinants of growth and distribution in a growth context in which education converts low-skilled workers into high-skilled workers. The paper concludes by summarizing its main implications and by commenting on related methodological and policy issues.