Determinants of the profit rates in the OECD economies: A panel data analysis of the Kalecki's profit equation

Ivan Trofimov

Structural Change and Economic Dynamics, 2022, vol. 61, issue C, 380-397

Abstract: The paper considers several determinants of profitability (investment rate, trade surplus, and budget deficit) in the OECD economies in the 1960–2014 period, using the Kalecki's profits equation framework. We estimate and utilise the aggregate profit rate measures for the total economy, employ a series of panel unit root and panel cointegration tests, and apply panel vector autoregressive (PVAR) model to examine the relationship between the profit rate and its determinants in the short- and long-run. The empirical evidence supports the hypothesis of positive effects of trade surplus on profitability, in line with Kaleckian views concerning the cyclical and secular dynamics of profits and profit restoration forces in the capitalist economies. The positive effects of investment rate on profitability are not confirmed, while the effects of fiscal activism on profitability are demonstrably negative; in contrast, a strong positive influence of profit rate on the pace of capital accumulation (investment) is indicated. The results are robust across sub-periods and panels with smaller cross-sectional dimension. Empirical results highlight the divergence between real investment and profitability, capital formation slowdown, and fiscal policy implementation problems in OECD economies over recent decades.

Keywords: Profit rate; Panel data; Cointegration; Panel vector autoregression (search for similar items in EconPapers)
JEL-codes: C22 E01 E11 E25 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:streco:v:61:y:2022:i:c:p:380-397

DOI: 10.1016/j.strueco.2022.03.004

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