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Growth with Unused Capacity and Endogenous Depreciation

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  • Fabrizio Patriarca
  • Claudio Sardoni

Abstract

This paper contributes to the debate on income growth and distribution from a nonmainstream perspective. It looks, in particular, at the role that the degree of capacity utilization plays in the process of growth of an economy that is not perfectly competitive. The distinctive feature of the model presented in the paper is the hypothesis that the rate of capital depreciation is an increasing function of the degree of capacity utilization. This hypothesis implies analytical results that differ somewhat from those yielded by other Kaleckian models. Our model shows that, in a number of cases, the process of growth can be profit-led rather than wage-led. The model also determines the value to which the degree of capacity utilization converges in the long run.

Suggested Citation

  • Fabrizio Patriarca & Claudio Sardoni, 2014. "Growth with Unused Capacity and Endogenous Depreciation," Economics Working Paper Archive wp_795, Levy Economics Institute.
    • Handle: RePEc:lev:wrkpap:wp_795
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    References listed on IDEAS

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    1. A. Michael Spence, 1977. "Entry, Capacity, Investment and Oligopolistic Pricing," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 534-544, Autumn.
    2. Michalis Nikiforos, 2013. "The (Normal) Rate of Capacity Utilization at the Firm Level," Metroeconomica, Wiley Blackwell, vol. 64(3), pages 513-538, July.
    3. Peter Skott, 2010. "Growth, Instability and Cycles: Harrodian and Kaleckian Models of Accumulation and Income Distribution," Chapters, in: Mark Setterfield (ed.), Handbook of Alternative Theories of Economic Growth, chapter 5, Edward Elgar Publishing.
    4. Eckhard Hein & Marc Lavoie & Till van Treeck, 2011. "Some instability puzzles in Kaleckian models of growth and distribution: a critical survey," Cambridge Journal of Economics, Oxford University Press, vol. 35(3), pages 587-612.
    5. Lavoie, Marc, 1995. "The Kaleckian Model of Growth and Distribution and Its Neo-Ricardian and Neo-Marxian Critiques," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 19(6), pages 789-818, December.
    6. Mark Setterfield (ed.), 2010. "Handbook of Alternative Theories of Economic Growth," Books, Edward Elgar Publishing, number 12814.
    7. Richard Kahn, 1989. "The Economics of the Short Period," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-349-09817-0.
    8. Eleni Angelopoulou & Sarantis Kalyvitis, 2012. "Estimating the Euler Equation for Aggregate Investment with Endogenous Capital Depreciation," Southern Economic Journal, John Wiley & Sons, vol. 78(3), pages 1057-1078, January.
    9. Patriarca, Fabrizio, 2012. "Time-to-build, obsolescence and the technological paradox," Structural Change and Economic Dynamics, Elsevier, vol. 23(1), pages 1-10.
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    Cited by:

    1. Patriarca, F. & Sardoni, C., 2017. "Distribution and growth. A dynamic approach," Structural Change and Economic Dynamics, Elsevier, vol. 40(C), pages 1-9.

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    More about this item

    Keywords

    Kaleckian Models of Growth; Capital Accumulation; Capital Depreciation; Income Distribution and Growth;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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