This paper uses the cumulative causation approach to predict actual growth in the EU (15) countries over the period 1981-2004. The cumulative causation principle underlines the importance of demand factors as the driving forces of growth and assumes that productive factors are endogenous to the growth process, challenging therefore, the neoclassical theory of exogenous growth.
A special characteristic of the cumulative growth approach is the presence of increasing returns to scale properties that turn the process of growth circular and self-sustained. In the same line of thought, an export-led growth approach is also employed to predict growth in the EU(15) countries which takes into account the balance of payments performance. In this framework, exports are the most potent element of demand that drive growth, and international trade elasticities are the key parameters determining the rate of growth.
This model is extended to include the productivity gap as important factor in determining export competitiveness. The empirical analysis uses panel estimation techniques to predict actual growth. Our evidence shows that both, the cumulative causation and export-led approaches, accurately predict actual growth in the EU(15) countries, and that exports and productivity (through technological progress) are the driving forces of growth.