Investment, Growth and Economic Fluctuations. A Self-Organised Criticality Approach

We study the behaviour: of the average aggregate growth rate of an economy, driven by only small idiosyncratic total factor productivity shocks and where investment behaviour at the single plant level follows an (S,s) policy. We assume that in the case of investment (disinvestment) there are positive (negative) localised spill-over effects because of factor demand linkages. We show that if these spill-over effects are strong, the economy converges naturally towards a "critical" state where there exists a positive, highly volatile aggregate investment rate which depends on the size of the microeconomic non-convexities. We find so a positive, highly volatile growth rate of aggregate output