How could the South respond to secular stagnation in the North ?

Developed countries face the risk of a sustained lack of aggregate demand, i.e. secular stagnation. Demand-oriented growth models emphasizing the balance-of-payments constraint raise concerns about attendant adverse growth impacts on developing countries from reduced export growth. These concerns are well-founded, albeit less serious than the simplest version of these models would imply. Relaxing their assumptions and emphasizing cumulative causation forces from domestic-demand growth and relative price effects indicates how changed policies can maintain rapid growth while reducing the import content of demand. Crucial is investment that reduces gaps between the composition of domestic production and domestic demand and emphasizes sectors with cumulative-causation effects, combined with incomes policy and capital-account management. Drawing down excessive foreign-exchange reserves and obtaining concessionary loans from development banks can finance required capital-goods imports. Enhanced South-South integration may be an important complement for small countries. Acknowledgement: The author is grateful to Raphie Kaplinsky, Sheila Page, Tony Thirlwall and Adrian Wood for helpful comments on earlier versions. The opinions expressed are solely those of the author and do not necessarily reflect the views of UNCTAD or its Member States.