Circular and Cumulative Processes in Economic Growth: The Importance of the External Demand

The Keynesian Theory and the New Economic Geography defend that the economic growth processes follow trends of divergence, through self-reinforced circular and cumulative phenomena, promoted by increasing returns to scale. The Keynesian Theory explains these processes highlighting the importance of the external demand and based on the Verdoorn law, where the productivity growth is endogenous and dependent on the output growth. The New Economic Geography developments are based on the real wage differences between economies and on transport costs. Following these contexts and the current conjuncture worldwide, this chapter proposes to test the impacts of external demand and real wages (as engines of circular and cumulative phenomena) on output growth. For that, statistical information associated with output growth, exports growth and wages was considered. To analyse these data, the Thirlwall law and the developments of the New Economic Geography were taken into account. The findings identified to reveal the importance of exports and employment compensation for the economic growth patterns worldwide and the relevance of dealing with these differences to promote more sustainable development.