Investment, growth and competitiveness: The multiplier-accelerator in the 21st century
Paulo Jorge Reis Mourão, Irina Alina Popescu
multiplier-accelerator (M-A), supermultiplier, investment, competitiveness, business cycle, European Economic Area (EEA)
This paper advances understanding of multiplier-accelerator interaction in European countries in the 21st century. More than eight decades from the contributions of Keynes and Samuelson, multiplier-accelerator interaction has spawned rich and interesting literature. In this study, we examined the relationship between investment, consumption, and economic growth for European Economic Area (EEA) countries, with data observed between 2000 and 2021. We found evidence for both multiplier and accelerator effects. However, for most European economies, the multiplier effect is stronger than the accelerator effect, helping to explain the profile of economic cycles. These results present two emerging policy implications. First, investment made in Europe reacts to the rates of economic growth observed in recent periods. Investment dynamics have long been highlighted as promoters of economic growth and competitiveness. Economic agents use investments to improve their strategic position as agents of long-term socioeconomic development. Second, the estimated effects are not uniform over time; investments react in the same direction as the economic growth observed in the previous years. This nonlinearity of effects obliges all decision-makers to duly anticipate these reactions as well as obliges the academic community to further study the subject. The existence of spatial competition in the distribution of investments leads to strategic behaviours by which competing countries ensure long term national competitiveness.
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Mourão, P.J.R. & Popescu, I.A. (2023). Investment, growth and competitiveness: The multiplier-accelerator in the 21st century. Journal of Competitiveness, 15(3), 60-78. https://doi.org/10.7441/joc.2023.03.04