Post-Keynesian and Marxian macro models assume that wage increases that lower profits have an adverse impact on investment spending. The experience of Korea during the period 1975-1993 contradicts this assumption. This paper reports results obtained from estimating a modified neo-Kaleckian investment function that examines the impact of increases in the wage share on business spending. Results of the Granger tests that assess the direction of causality between wages, investment, and productivity are also given. Tests indicate that lagged values of the wage share of income have a positive impact on investment. There are several explanations for this, most of which stem from restrictions on foreign direct investment, and the government's ability to discipline capital through its control over loanable funds coupled with the use of measurable benchmarks in export sales in return for access to subsidized credit and other "carrots." Firms appear to be constrained by these factors to respond to wages hikes by adopting technological upgrades, thereby raising productivity and maintaining export competitiveness.
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number
6539.
Length: Date of creation: 1999 Date of revision: Publication status: Published in Journal of Post-Keynesian Economics 2.22(1999): pp. 313-338 Handle: RePEc:pra:mprapa:6539
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Find related papers by JEL classification: D33 - Microeconomics - - Distribution - - - Factor Income Distribution E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity O3 - Economic Development, Technological Change, and Growth - - Technological Change
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