An empirical test of the Post-Keynesian growth model applied to functional income distribution and the growth regime in Brazil

Abstract

The main purpose of this paper is to empirically investigate whether, between 1970 and 2008, the Brazilian economy was profit-led or wage-led. To this end, we approach a canonical post-Keynesian growth model (PKGM) to estimate certain vector autoregressive (VAR) models and perform Granger non-causality tests. Three main results are extracted from the generalized impulse-response functions provided by the VAR models. First, a positive profit-share innovation affects economic growth and capacity utilization rate, both in the same direction, suggesting a profit-led pattern. Second, a profit share shock positively affects both the ratio actual/potential output, and capital accumulation, reinforcing the previous result. Third, a capacity utilization shock is shown to positively affect both output growth and capital accumulation via the accelerator effect. On the one hand, the pairwise Granger non-causality test does not provide any evidence of causality running from profit share to economic growth or capacity utilization. On the other hand, there is some evidence of Granger causality running from profit share to capital accumulation. JEL CLASSIFICATION e12; e25; o40 ARTICLE HISTORY

Omitted-variable bias in demand-regime estimations: the role of household credit and wage inequality in Brazil

“…Their analysis of accumulated impulse-response functions finds a wage-led growth pattern as well as a debt-burdened pattern for capital accumulation. The inclusion of a third endogenous variable, the debt series in this case, seems to have altered the relationship between capital accumulation and the functional distribution of income found in Jesus et al (2018).…”

“…The author argues that the difference between Bruno (2005) and Araújo and Gala's (2012) results can be attributed to two factors: the lack of significance of the profit share in the estimation of the investment function, also present in the other studies, and the negative estimated effect of the profit share on net exports, as opposed to the other studies. Jesus et al (2018), on the other hand, follow the aggregate method. They test empirically the basic Post-Kaleckian growth model by estimating a three-dimensional VAR with the GDP growth rate, capacity utilization, and the profit share with annual data from 1970 to 2008.…”

“…The motivation for the study of the Brazilian case is in the apparent contradiction between various econometric estimations that established the country's demand regime as profit-led (Araujo and Gala 2012; Jesus et al 2018) and the combination of higher GDP growth and higher wage share experienced in the early twenty-first century. In particular, by observing the positive association between aggregate demand and real wages, some have treated the period as one of wage-led growth even if econometric results pointed in the opposite direction (Serrano and Summa 2012b).…”

An Empirical Stock-Flow Consistent Macroeconomic Model for Denmark

“…Theoretically, in the above equation has also been interpreted by several authors as reflecting "animal spirits" (e.g., Fujita [2018] and Jesus, Araujo, and Drumond [2018]).…”

Functional income distribution, capacity utilization, capital accumulation and productivity growth in Turkey: A post‐Kaleckian analysis

“…Onaran and Stockhammer (2007), adopting an identical model, concluded that accumulation and employment are not profit‐led, and the demand regime is, at least in the short‐run, wage‐led in Turkey. More recently, De Jesus, Araujo, and Drumond (2017) analyzed the Brazilian economy and found that both accumulation and demand regimes are profit‐led. Although this approach enables simultaneous interactions among variables, the disadvantage is the difficulty of identification of effects of individual variables (Stockhammer & Ederer, 2008).…”