Consumption and capital growth

TL;DR

The paper asks whether capital growth requires net saving or can proceed without it by testing thrift theory against consumption data. It formalizes thrift predictions with $\\Delta K = S_{net}$, $g(K) = \\frac{\\Delta K}{K}$, $\\Delta g(K) = \\Delta s^* = -\\Delta c^*$, and $\\theta_c = \\frac{-\\Delta c^*}{\\Delta g(K)}$. Using wid.world data for 90 countries from 1980–2021, it finds $\\theta_c \\\approx 0$ and the regression slope well below unity, contradicting thrift theory's unit predictions. The results support the view that large-scale capital growth is financed by depreciation investment with no net saving, prompting a reassessment of macro models and attention to thrift dynamics at smaller scales.

Abstract

Capital growth, at large scales only, arrives with no help from net saving, and consequently with no help from consumption constraint. Net saving, at large scales, is sacrifice of consumption with nothing in return.

Figures (1)

• Figure 1: Plots of $\theta_{c}$ averaged over all countries, GDP-weighted. Screen: $|\Delta g(K)| \geq 0.01$. $H_0:\ \theta_c \cong 1$.