Standard Post-Keynesian investment functions and their demand regime: a comprehensive empirical estimation for France

Abstract

The aim of this article is twofold. In a first step, we estimate a large variety of standard Post-Keynesian investment functions for France over the period 1979–2020 by rigorously following the original features of a theoretical macro-model of growth and distribution. In a second step, for each of these investment functions, we also assess the corresponding demand regime contributing to the current profit-led/wage-led debate. Our results show that the French economy seems to be wage-led. Besides, the intensity of the regime varies greatly with the specific form of the investment function under consideration.

Keywords:

• Investment functions
• Post-Keynesian macro-model
• demand regime
• France

JEL codes:

• C51
• E12
• E22

Acknowledgments

The author is grateful to three anonymous referees for their very constructive comments. He thanks Christopher Sutcliffe for his attentive reading of the manuscript. He also benefitted from discussions with Federico Bassi, Thomas Dallery, Michel Sardouille and Florian Botte. Of course, usual caveats apply.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 For a systematic presentation of the Post-Keynesian model of growth and distribution see Hein (2014).

2 Appendix 1 summarizes the whole results with six different investment functions.

3 Studies adopting the aggregative/systems approach are, for instances, Barbosa-Filho and Taylor (2006), Carvalho and Rezai (2016) and Blecker, Cauvel, and Kim (2022).

4 See Appendix 2 for a survey summarizing investment equations that contain variables different from the usual utilization rate, profit rate or profit share. It turns out that a substantial part of the literature is devoted to the impact of financial variables such as corporate debt, endogenous interest rate, retained earnings or equity prices in relationship with Minskyan models.

5 Here, we assign a weight of 15% to Belgium, Italy, Netherlands, Spain and the US whereas a weight of 25% is applied to Germany considering its importance for French exports.

6 In what follows, we report the results for second-order serial correlation, although we systematically controlled for first and third-order serial correlation.

7 The plots of the CUSUM and CUSUMSQ tests can be found in Appendix 3.