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Globalization as coordination failure: A Keynesian perspective

Rudiger von Arnim (), Daniele Tavani and Laura Barbosa de Carvalho

No 1202, Working Papers from New School for Social Research, Department of Economics

Abstract: This paper presents an(other) investigation of the links between growth and distribution. We discuss a Neo–Kaleckian two country model with fixed mark–ups, where repercussions between the two countries matter. We assume that demand is wage–led in autarky but profit–led with trade, and study the effect of home country redistribution toward labor on aggregate demand in both countries. We derive closed form results for two identical countries, and run simulations to consider different economic structures (initial trade balance, relative country size, trade openness) and behav- ioral parameters (investment, savings and import elasticities). First, redis- tribution towards labor in one country always increases demand globally. Second, even with conservative parameterizations, the demand increase in the redistributing (appreciating) country can be positive, although the demand increase is definitely larger in the depreciating country. There- fore, third, globalization generates incentives for individual countries to suppress labor, which depresses global demand.

Keywords: Neo–Kaleckian demand and distribution; globalization; two country model; demand repercussions; coordination failure (search for similar items in EconPapers)
JEL-codes: E12 E27 F42 F59 (search for similar items in EconPapers)
Date: 2012-04
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