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Globalization as coordination failure: A Keynesian perspective

Author

Listed:
  • Rudiger von Arnim

    () (University of Utah)

  • Daniele Tavani

    (Colorado State University)

  • Laura Barbosa de Carvalho

    (Department of Economics, New School for Social Research)

Abstract

This paper presents an(other) investigation of the links between growth and distribution. We discuss a Neo–Kaleckian two country model with fixed mark–ups, where repercussions between the two countries matter. We assume that demand is wage–led in autarky but profit–led with trade, and study the effect of home country redistribution toward labor on aggregate demand in both countries. We derive closed form results for two identical countries, and run simulations to consider different economic structures (initial trade balance, relative country size, trade openness) and behav- ioral parameters (investment, savings and import elasticities). First, redis- tribution towards labor in one country always increases demand globally. Second, even with conservative parameterizations, the demand increase in the redistributing (appreciating) country can be positive, although the demand increase is definitely larger in the depreciating country. There- fore, third, globalization generates incentives for individual countries to suppress labor, which depresses global demand.

Suggested Citation

  • Rudiger von Arnim & Daniele Tavani & Laura Barbosa de Carvalho, 2012. "Globalization as coordination failure: A Keynesian perspective," Working Papers 1202, New School for Social Research, Department of Economics.
  • Handle: RePEc:new:wpaper:1202
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    File URL: http://www.economicpolicyresearch.org/econ/2012/NSSR_WP_022012.pdf
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. David Kiefer & Codrina Rada, 2015. "Profit maximising goes global: the race to the bottom," Cambridge Journal of Economics, Oxford University Press, vol. 39(5), pages 1333-1350.
    2. Armon Rezai, 2015. "Demand and distribution in integrated economies," Cambridge Journal of Economics, Oxford University Press, vol. 39(5), pages 1399-1414.
    3. Hiroaki Sasaki & Shinya Fujita, 2015. "Demand and Income Distribution in a Two-Country Kaleckian Model," Discussion papers e-14-017, Graduate School of Economics Project Center, Kyoto University.
    4. Engelbert Stockhammer & Ozlem Onaran, 2013. "Wage-led growth: theory, evidence, policy," Review of Keynesian Economics, Edward Elgar Publishing, vol. 1(1), pages 61-78, January.
    5. repec:era:wpaper:dp-2015-51 is not listed on IDEAS
    6. Özlem Onaran, 2016. "Wage- versus profit-led growth in the context of international interactions and public spending: The political aspects of wage-led recovery," Working Papers PKWP1603, Post Keynesian Economics Society (PKES).
    7. Laura Carvalho & Armon Rezai, 2016. "Personal income inequality and aggregate demand," Cambridge Journal of Economics, Oxford University Press, vol. 40(2), pages 491-505.

    More about this item

    Keywords

    Neo–Kaleckian demand and distribution; globalization; two country model; demand repercussions; coordination failure;

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • F59 - International Economics - - International Relations, National Security, and International Political Economy - - - Other

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