Efficiency-Based Development Versus Demand-Led and Supply-Led Growth

The paper argues that the possibility of demand-led and supply-led growth models to ensure economic growth is limited and states the feasibility of shifting toward an efficiency-based development model. In particular, monetary policy should aim at increasing efficiency in the real sector. For this, monetary policy should ensure that interest rates are set at the level of profitability in the real sector as both a low and high interest rate adversely affects firms’ efficiency. The paper also argues that a financial system based on equity financing and trade credit is more conducive to efficiency compared to debt-based model. The paper also argues that an effective way to contribute to efficiency in the real sector is a wealth tax which induces the productive use of assets that will cause an increase in efficiency in the real sector