Distribution and Growth in France (1982-2006): A Cointegrated VAR Approach

Olivier Allain () and Nicolas Canry ()
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Nicolas Canry: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique

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Abstract: In this article, we propose a simple Post Keynesian model so as to test whether French economy is wage or profit-led i.e. whether a wage share increase has a negative or positive impact on economic growth. In that perspective, we estimate econometrically the three behaviour equations of our model (consumption, investment and net exports equations) by using a VECM. Once these equations estimated, we solve our model by using the estimated coefficients and can then conclude on the nature of the French economic regime. Our main conclusion is that French economy would be profit-led. However, although an increase of wage share would have a negative impact on economic growth, this negative impact is very weak, as a one point increase of profit share increases economic growth of only 0.1 %. According to our econometric analysis, wage share increase has a positive impact on consumption and no significant direct effect on the balance of trade. Nevertheless, imports are very sensitive to any output increase, which implies a strong negative impact on the multiplier. Moreover, as the accelerator coefficient (in the investment equation) is not very important, the positive effect of a wage share increase on capital accumulation through consumption is not strong enough to outweigh the negative impact of a wage share increase on investment, consecutive to the decline of profitability. Finally, these two elements –weak accelerator and multiplier effects– well explain why any support of consumption through a wage increase would not have a positive and important impact on French economic growth nowadays. Symmetrically, no positive effect of a wage austerity policy on growth must be expected.

Keywords: Income distribution; Wage moderation; Economic growth; VECM (search for similar items in EconPapers)
Date: 2007-10-26
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00192267
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Citations: View citations in EconPapers (3)

Published in 11th Workshop on the Research Network "Macroeconomic Policies", Oct 2007, Berlin, Germany

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Working Paper: Distribution and Growth in France (1982-2006): A Cointegrated VAR Approach (2007)
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