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Title Demand-led Growth and Long-run Convergence in a Neo-Kaleckian Two-sector Model
Author Jung Hoon Kim (Gyeonggi Research Institute) and Marc Lavoie (University of Ottawa)
Volume 33 Number 1
Keywords Two-sector Model, Kaleckian Growth Model, Profit Rate Equalization, Paradox of Thrift, Paradox of Costs
Abstract This paper analyzes a two-sector model, with consumption and investment sectors, which
incorporates both Kaleckian and Classical views. Starting from a model where investment
depends on actual profit rates and rates of capacity utilization, we characterize three regimes
with different investment functions and specific adjustment mechanisms to bring about a
uniform rate of profit and convergence between the actual and the normal rates of capacity
utilization. We find that the paradox of thrift holds in the long run for all regimes. With
regards to income distribution, results concerning wage-led growth and the paradox of costs
are more ambiguous. The reproportioning of the capital stock between the two sectors is also
discussed. We conclude that our analysis provides some justification for using simple onesector
Kaleckian models, since the results achieved with the two-sector model are roughly in
conformity with those of the one-sector model, depending on the closure being used.
File KER-20170630-33-1-07.pdf
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