The Korean Economic Review
Demand-led Growth and Long-run Convergence in a Neo-Kaleckian Two-sector Model
Jung Hoon Kim (Gyeonggi Research Institute) and Marc Lavoie (University of Ottawa)Year 2017Vol. 33No. 1
Abstract
This paper analyzes a two-sector model, with consumption and investment sectors, whichincorporates both Kaleckian and Classical views. Starting from a model where investmentdepends on actual profit rates and rates of capacity utilization, we characterize three regimeswith different investment functions and specific adjustment mechanisms to bring about auniform rate of profit and convergence between the actual and the normal rates of capacityutilization. We find that the paradox of thrift holds in the long run for all regimes. Withregards to income distribution, results concerning wage-led growth and the paradox of costsare more ambiguous. The reproportioning of the capital stock between the two sectors is alsodiscussed. We conclude that our analysis provides some justification for using simple onesectorKaleckian models, since the results achieved with the two-sector model are roughly inconformity with those of the one-sector model, depending on the closure being used.