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The Investment Function Revisited: Disciplining Capital in Korea

Listed author(s):
  • Seguino, Stephanie

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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File URL: https://mpra.ub.uni-muenchen.de/6539/1/MPRA_paper_6539.pdf
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File URL: https://mpra.ub.uni-muenchen.de/14043/1/MPRA_paper_14043.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 6539.

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Date of creation: 1999
Publication status: Published in Journal of Post-Keynesian Economics 2.22(1999): pp. 313-338
Handle: RePEc:pra:mprapa:6539
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  1. Dutt, Amitava Krishna, 1984. "Stagnation, Income Distribution and Monopoly Power," Cambridge Journal of Economics, Oxford University Press, vol. 8(1), pages 25-40, March.
  2. Blecker, Robert A, 1989. "International Competition, Income Distribution and Economic Growth," Cambridge Journal of Economics, Oxford University Press, vol. 13(3), pages 395-412, September.
  3. Bhaskar, V. & Glyn, A., 1992. "Investment and Profitability: The Evidence from the Advanced Capitalist Countries," Economics Series Working Papers 99144, University of Oxford, Department of Economics.
  4. Stephanie Seguino, 1997. "Gender wage inequality and export-led growth in South Korea," Journal of Development Studies, Taylor & Francis Journals, vol. 34(2), pages 102-132.
  5. Robert S. Chirinko, 1992. "Business Fixed Investment Spending: A Critical survey of Modeling Strategies, Empirical Results, and Policy Implications," Working Papers 9213, Harris School of Public Policy Studies, University of Chicago.
  6. Marc Lavoie, 1992. "Foundations of Post-Keynesian Economic Analysis," Books, Edward Elgar Publishing, number 275.
  7. Kurz, Heinz D, 1990. "Effective Demand, Employment and Capital Utilisation in the Short Run," Cambridge Journal of Economics, Oxford University Press, vol. 14(2), pages 205-217, June.
  8. Shapiro, Helen & Taylor, Lance, 1990. "The state and industrial strategy," World Development, Elsevier, vol. 18(6), pages 861-878, June.
  9. Henley, Andrew & Tsakalotos, Euclid, 1991. "Corporatism, Profit Squeeze and Investment," Cambridge Journal of Economics, Oxford University Press, vol. 15(4), pages 425-450, December.
  10. 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 375-393, December.
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