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The limits to wage-led growth in a low-income economy

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  • Razmi, Arslan

    () (The University of Massachusetts at Amherst)

Abstract

Neo-Kaleckian literature has actively debated whether growth is wage- or profit-led in capitalist economies. However, existing studies tend to ignore the non-tradable sector and heterogeneity within the tradable sector. This paper shows that incorporating these features renders wage-led growth in an open developing economy unfeasible in the traditional (Kaleckian) sense of the term. This result -- which follows even if one sets aside the competitiveness considerations generally seen as impeding such growth -- occurs due to the presence of a homogeneous goods-producing tradable sector that sets the ceiling to steady state growth. A corollary, in light of findings from the "new new trade theory" literature, is that increasing South-South trade may tend to narrow room for wage-led growth regardless of the other desirable effects of higher wages.

Suggested Citation

  • Razmi, Arslan, 2015. "The limits to wage-led growth in a low-income economy," UMASS Amherst Economics Working Papers 2015-01, University of Massachusetts Amherst, Department of Economics.
  • Handle: RePEc:ums:papers:2015-01
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    File URL: http://www.umass.edu/economics/publications/2015-01.pdf
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    References listed on IDEAS

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    3. Neil Rankin & Volker Schöer, 2013. "Export Destination, Product Quality and Wages in a Middle-Income Country. The Case of S outh A frica," Review of Development Economics, Wiley Blackwell, vol. 17(1), pages 64-73, February.
    4. Martín Rapetti & Peter Skott & Arslan Razmi, 2012. "The real exchange rate and economic growth: are developing countries different?," International Review of Applied Economics, Taylor & Francis Journals, vol. 26(6), pages 735-753, April.
    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 375-393, December.
    6. Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, vol. 68(1), pages 238-265, January.
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    10. Hiroaki Sasaki & Ryunosuke Sonoda & Shinya Fujita, 2013. "International Competition and Distributive Class Conflict in an Open Economy Kaleckian Model," Metroeconomica, Wiley Blackwell, vol. 64(4), pages 683-715, November.
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    Cited by:

    1. Razmi, Arslan, 2015. "Growth and Distribution in Low Income Economies: Modifying Post Keynesian Analysis in Light of Theory and History," UMASS Amherst Economics Working Papers 2015-16, University of Massachusetts Amherst, Department of Economics.

    More about this item

    Keywords

    Wage-led growth; non-tradables; neo-Kaleckian models; development; output heterogeneity.;

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • F66 - International Economics - - Economic Impacts of Globalization - - - Labor
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory

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