The limits to wage-led growth in a low-income economy

Arslan Razmi ()
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Arslan Razmi: The University of Massachusetts at Amherst

No 2015-01, UMASS Amherst Economics Working Papers from University of Massachusetts Amherst, Department of Economics

Abstract: Neo-Kaleckian literature has actively debated whether growth is wage- or profit-led in capitalist economies. However, existing studies tend to ignore the non-tradable sector and heterogeneity within the tradable sector. This paper shows that incorporating these features renders wage-led growth in an open developing economy unfeasible in the traditional (Kaleckian) sense of the term. This result -- which follows even if one sets aside the competitiveness considerations generally seen as impeding such growth -- occurs due to the presence of a homogeneous goods-producing tradable sector that sets the ceiling to steady state growth. A corollary, in light of findings from the "new new trade theory" literature, is that increasing South-South trade may tend to narrow room for wage-led growth regardless of the other desirable effects of higher wages.

Keywords: Wage-led growth; non-tradables; neo-Kaleckian models; development; output heterogeneity. (search for similar items in EconPapers)
JEL-codes: E12 F43 F63 F66 O41 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-gro, nep-mac and nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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