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Enriching the Neo-Kaleckian Growth Model: Nonlinearities, Political Economy, and Financial Factors

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  • Thomas I. Palley

Abstract

This paper expands the neo-Kaleckian growth model to include nonlinearities, political economy factors, and interest rate and stock market effects. The expansions enrich the model and enhance its capacity to analyze and explain developments within contemporary capitalist economies. Nonlinearities can potentially make economies both wage- and profit-led, and failure to control for nonlinearities may result in misleading conclusions about the structure of the economy. Political economy analysis suggests capital’s desire for profit maximization results in a lower growth rate. Lastly, the paper shows why q theory of investment is inconsistent with the neo-Kaleckian approach to capital accumulation and a higher q can be associated with a fall in the rate of investment.

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Paper provided by Political Economy Research Institute, University of Massachusetts at Amherst in its series Working Papers with number wp335.

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Date of creation: 2013
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Handle: RePEc:uma:periwp:wp335

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Keywords: wage-led; profit-led; nonlinearities; q theory; stock market; political economy;

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  1. Palley, Thomas I, 2001. "The Stock Market and Investment: Another Look at the Micro-foundations of q Theory," Cambridge Journal of Economics, Oxford University Press, vol. 25(5), pages 657-67, September.
  2. Stockhammer, Engelbert, 2011. "Wage-led growth: An introduction," Economics Discussion Papers 2011-1, School of Economics, Kingston University London.
  3. Eckhard Hein & Artur Tarassow, 2008. "Distribution, aggregate demand and productivity growth - theory and empirical results for six OECD countries based on a Post-Kaleckian model," IMK Working Paper 18-2008, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  4. James R. Crotty, 1990. "Owner-Manager Conflict and Financial Theories of Investment Instability: A Critical Assessment of Keynes, Tobin, and Minsky," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 12(4), pages 519-542, July.
  5. Bhaduri, Amit & Marglin, Stephen, 1990. "Unemployment and the Real Wage: The Economic Basis for Contesting Political Ideologies," Cambridge Journal of Economics, Oxford University Press, vol. 14(4), pages 375-93, December.
  6. Dutt, Amitava Krishna, 1984. "Stagnation, Income Distribution and Monopoly Power," Cambridge Journal of Economics, Oxford University Press, vol. 8(1), pages 25-40, March.
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