Long run convergence in a neo-Kaleckian open-economy model with autonomous export growth

By Won Jun Nah, Marc Lavoie

PKES Working Paper 1604

February 2016

A simple neo-Kaleckian open-economy model is presented and its implications for growth regimes are analyzed. The present model features long run-convergence to its normal rate of capacity utilization, which is conditionally achieved by incorporating the Harrodian principle of instability and autonomous growth in foreign demand. It is demonstrated that some aspects of the main Kaleckian results can be preserved not only in the short run but also in the long run, in the sense that both (i) a decrease in the propensity to save, and (ii) a change in income distribution favoring labor, bring about higher average rates of production growth and capital accumulation. However, the long-run impact of a change in the profit share is shown to be subjected to the condition that the responsiveness of the real exchange rate with respect to the profit share has to be bounded from above, confirming that the scope for wage-led demand or wage-led growth can be limited by open-economy considerations.

Keywords: neo-Kaleckian, growth, capacity utilization, exports, profit share, real exchange rate

JEL classification: E11 F41 O41