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The secular decline in profit rates: time series analysis of a classical hypothesis

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  • Trofimov, Ivan D.

Abstract

Recent global financial crisis and ongoing turbulence in the global economy revived interest in the classical hypothesis of declining profit rates and vanishing profit opportunities as one of the reasons of economic instabilities. This paper, while not joining theoretical debate on the driving factors of profit rates’ decline, reconsiders empirically the hypothesis of the secular decline in economy-wide profit rates. A panel of unit root tests is used and deterministic and stochastic trend models (with or without structural breaks) are estimated. It is shown that instead of continuous downward trend, profit rates exhibit diverse dynamics – random walk, deterioration with breaks, reversals, or the absence of trend. Likewise, it is shown in an exploratory analysis that a variety of factors were determining profit rates, with capital productivity and competitive dynamics in the economy likely being the most salient.

Suggested Citation

  • Trofimov, Ivan D., 2018. "The secular decline in profit rates: time series analysis of a classical hypothesis," MPRA Paper 88248, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:88248
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    References listed on IDEAS

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    More about this item

    Keywords

    Profit rates; time series; unit root; trend estimation; classical political economy;
    All these keywords.

    JEL classification:

    • B51 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Socialist; Marxian; Sraffian
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • P17 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Performance and Prospects

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