Autonomous Demand and Its Impact on Growth and Income Distribution: Empirical Insights from South America

This article explores how semi-autonomous components of demand, namely, government spending and exports, could interfere with the relationship between growth and the functional income distribution (wage share). Using time-series data from five different South American economies, Argentina, Brazil, Bolivia, Colombia, and Peru, we build a series of structural vector autoregression (SVAR) models: a simple two-dimensional SVAR that includes growth and wage share and a multidimensional SVAR model that further includes control variables: (1) exports as a share of the output, and (2) government spending as a share of the GDP. We compare their impulse response function (IRF) results. We conclude that the usual suspects of autonomous demand for South American economies, government spending and exports, are interfering in the relationship between growth and the functional income distribution. These findings suggest that in South America’s predominantly profit-led and often export-dependent growth regimes, public expenditure plays a distinctive role in mediating the growth–distribution nexus, as it supports employment-intensive social services and more broadly shared income. JEL Classification: B50, E11, E12, O47