A Transition from Consumption-Dependent Development to Investment-Driven Development: A Comparison of 40 Countries

Abstract

Following up the contrasting behaviors that growing economies suffer from an autarky cycle between consumption and economic growth. Advancing and advanced economies allow GDP growth for inducing investments efficiently. An empirical analysis was conducted in 40 countries, inspired by Samuelson’s multiplier-accelerator model, to examine a mechanism for switching from an autarky cycle to an investment-inducing virtuous cycle. The results suggest that a correlation between consumption growth and investment intensity is crucial to enable a shift from an autarky cycle to a virtuous cycle. The transition dynamism of economic cycles in these countries in the last three decades is also analyzed.