Wage- and profit-led growth regimes: a panel-data approach

Guilherme de Oliveira and Eduardo Prado Souza
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Guilherme de Oliveira: Department of Economics and International Relations, Federal University of Santa Catarina, Florianópolis, Brazil
Eduardo Prado Souza: Department of Economics and International Relations, Federal University of Santa Catarina, Florianópolis, Brazil

Review of Keynesian Economics, 2021, vol. 9, issue 3, 394-412

Abstract: The extensive empirical effort made in the growth and distribution literature to estimate whether economic growth is wage- or profit-led has not sufficiently considered the theoretical foundation of the Neo-Kaleckian model. This paper attempts to respect key tenets of the investment function by estimating a panel-data model in which country-specific structural characteristics and possible endogenous relationships in income distribution and economic growth are explicitly considered. The identification strategy is based on several estimates of the capital stock and the rate of capacity utilization for 61 countries over the period between 1995 and 2014. The main results suggest that the growth regime was wage-led in developed countries, while most developing countries exhibited a profit-led growth regime. Interestingly, however, while the profit-led regime occurs through the international trade channel in Latin American countries, in other developing countries, the causality channel is mainly related to the domestic investment function.

Keywords: economic growth; income distribution; panel data (search for similar items in EconPapers)
JEL-codes: E12 F43 O47 (search for similar items in EconPapers)
Date: 2021
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