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Does the Steindl-Dutt Investment Function Rule Out Profit-Led Expansion?

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  • Deepankar Basu

    (Department of Economics, University of Massachusetts - Amherst)

Abstract

Bhaduri and Marglin (1990) had argued that an investment function which has the profit rate and the capacity utilization rates as the two determinants of investment imposes unwarranted restrictions on the macroeconomic model and rules out profit-led expansion. In this paper, I show that this critique only holds in a closed economy model. In an open economy model, such an investment function does not rule out profit-led expansion. I argue that the problem was less in the investment function itself than in the larger model within which it was embedded, in particular the saving behavior of the macroeconomy entailed by the model.

Suggested Citation

  • Deepankar Basu, 2018. "Does the Steindl-Dutt Investment Function Rule Out Profit-Led Expansion?," UMASS Amherst Economics Working Papers 2018-06, University of Massachusetts Amherst, Department of Economics.
    • Handle: RePEc:ums:papers:2018-06
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    References listed on IDEAS

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    1. Bhaduri, Amit & Marglin, Stephen, 1990. "Unemployment and the Real Wage: The Economic Basis for Contesting Political Ideologies," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 14(4), pages 375-393, December.
    2. Peter Skott, 2017. "Weaknesses of 'wage-led growth'," Review of Keynesian Economics, Edward Elgar Publishing, vol. 5(3), pages 336-359, July.
    3. Dutt, Amitava Krishna, 1984. "Stagnation, Income Distribution and Monopoly Power," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 8(1), pages 25-40, March.
    4. Robert A. Blecker, 2010. "Open economy models of distribution and growth," Working Papers 2010-03, American University, Department of Economics.
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    More about this item

    Keywords

    structuralist model; investment function; profit-led expansion;
    All these keywords.

    JEL classification:

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

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