Testing Goodwin: growth cycles in ten OECD countries

Abstract

Following Desai (Desai, M. 1984. An econometric model of the share of wages in national income: UK 1855-1965, pp. 253-77 in Goodwin, R. M. et al. (eds), Nonlinear Models of Fluctuating Growth, Berlin, Springer), Goodwin's simple 'predator-prey' growth cycle model of the economy (Goodwin, R. M. 1967. A growth cycle, pp. 54-8 in Feinstein, C. H. (ed), Socialism, Capitalism, and Economic Growth, Cambridge, Cambridge University Press; reprinted in Goodwin, R. M. 1982. Essays in Economic Dynamics, Basingstoke, Macmillan, pp. 165-70) is tested, using post-war data for ten OECD countries - Australia, Canada, Finland, France, Germany, Greece, Italy, Norway, the UK and the US. At a quantitative level, Goodwin's model is found not to be adequate: (i) estimated parameter values poorly predict the cycles' centres; and (ii) Goodwin's restrictive assumptions are not justified. However, at a qualitative level, the evidence presented here for the existence of Goodwin-type cycles is extremely encouraging, justifying both existing theoretical extensions of Goodwin's model and further empirical work in this area.

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