Is planet Earth as a whole likely to be wage-led?

Arslan Razmi ()
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Arslan Razmi: Department of Economics, University of Massachusetts Amherst

UMASS Amherst Economics Working Papers from University of Massachusetts Amherst, Department of Economics

Abstract: Evidence regarding the relationship between distribution, demand, and growth in the short run has been mixed. Open economy models that create the possibility of beggar-thy-neighbor growth offer one theoretical explanation for why this may be expected. Several authors have argued recently, however, that even if demand and growth are profit-led in many individual countries, the global economy is likely to be wage-led since the planet as a whole runs balanced trade. This paper finds that this argument, although intuitively appealing, does not hold up to careful examination. Although the world economy as a whole is a closed system, it is not isomorphic to a closed economy, thanks to repercussion effects, relative price movements, and cross-country heterogeneity. The effects of global redistribution depend on the nature of its constituent economies.

Keywords: Demand regime; income distribution; wage-led growth; neo-Kaleckian open economy models. (search for similar items in EconPapers)
JEL-codes: E12 F43 O11 O41 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-gro and nep-pke
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