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Demand-led Growth and Long-run Convergence in a Neo-Kaleckian Two-sector Model

Author

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  • Jung Hoon Kim

    (Gyeonggi Research Institute)

  • Marc Lavoie

    (University of Ottawa)

Abstract

This paper analyzes a two-sector model, with consumption and investment sectors, which incorporates both Kaleckian and Classical views. Starting from a model where investment depends on actual profit rates and rates of capacity utilization, we characterize three regimes with different investment functions and specific adjustment mechanisms to bring about a uniform rate of profit and convergence between the actual and the normal rates of capacity utilization. We find that the paradox of thrift holds in the long run for all regimes. With regards to income distribution, results concerning wage-led growth and the paradox of costs are more ambiguous. The reproportioning of the capital stock between the two sectors is also discussed. We conclude that our analysis provides some justification for using simple onesector Kaleckian models, since the results achieved with the two-sector model are roughly in conformity with those of the one-sector model, depending on the closure being used.

Suggested Citation

  • Jung Hoon Kim & Marc Lavoie, 2017. "Demand-led Growth and Long-run Convergence in a Neo-Kaleckian Two-sector Model," Korean Economic Review, Korean Economic Association, vol. 33, pages 179-206.
    • Handle: RePEc:kea:keappr:ker-20170630-33-1-07
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    References listed on IDEAS

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    Cited by:

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    3. Huang, Biao, 2022. "On the Over-determination Problem in a Two Sector Neo-Kaleckian Model," Centro Sraffa Working Papers CSWP56, Centro di Ricerche e Documentazione "Piero Sraffa".
    4. Nishi, Hiroshi, 2020. "A two-sector Kaleckian model of growth and distribution with endogenous productivity dynamics," Economic Modelling, Elsevier, vol. 88(C), pages 223-243.

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    More about this item

    Keywords

    Two-sector Model; Kaleckian Growth Model; Profit Rate Equalization; Paradox of Thrift; Paradox of Costs;
    All these keywords.

    JEL classification:

    • B51 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Socialist; Marxian; Sraffian
    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory

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