Growth, Distribution, and External Constraints: A Post-Kaleckian Model Applied to Brazil

ABSTRACT

The purpose of this research is to analyze whether the Brazilian economy behaved under a wage-led or profit-led regime between 1960 and 2011, considering a Post-Kaleckian model in a context of external constraints. The time span is limited by data availability (i.e., 2011). To answer the question of whether the Brazilian economy works under a wage-led or profit-led regime, we propose a simple Post-Kaleckian model. The model suggests that a profit-led regime is more probable for Brazil. Moreover, a wage-led regime occurs when a balance of payments constrained growth model is taken into consideration. Likewise, the real exchange rate has a positive impact on economic growth through the export channel. This result is a novelty in the recent literature about the relationship between real exchange rate and economic growth within a Post-Kaleckian model. The Brazilian economy was chosen as it is one of the biggest economies in Latin America.

KEYWORDS:

• Post-Kaleckian theory
• external constraint
• productivity
• wage-led
• profit-led

JEL CLASSIFICATION:

• E25
• O40
• O33

Acknowledgements

We would like to thank two anonymous referees, as well as Malcom Sawyer for helpful comments, with improving the paper. The usual disclaimers apply.

Disclosure Statement

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

Notes

1 Blecker (1999) shows how a profit-led regime can prevail in open Kaleckian models.

2 Regarding the several channels by which the real exchange rate affects economic growth, see Missio et al. (2015); Gabriel, Jayme Jr, and Oreiro (2016), Razmi, Rapetti, and Skott (2012); Alencar, Jayme Jr, and Britto (2018), among others.

3 In which $x=\epsilon z$ by definition.

4 î is similar for the rate of growth of capital stock (I/K), as highlighted in Oreiro and Araújo (2013).

5 The more appropriate model is the OLS corrected by the HAC matrix, since this methodology corrects problems related with autocorrelation and heteroskedasticity.

6 This point was highlighted by an anonymous referee, whom we thank. Indeed, as she (he) has pointed out, China modern development, with its quite perennial devalued real exchange rate, may be a real example of this. Moreover, perhaps one can calculate if these effects (which of them, the negative or the positive), in case of the real exchange rate devaluations are more important, in the case of (a) wage-led; or (b) profit-led economies. That may be another important question to be studied in the future — real exchange devaluations and their impacts on wage-led and profit-led economies, in the short, and in the medium-long runs.

7 The autocorrelation test is shown in the appendix of this study.

8 In this comparison, we considered only the figure that was significant.

9 Hansen and Kvedaras (2004) analyze the elasticities for the Baltics countries such as Estonia, Latvia and Lithuania; by using times-series econometrics methods the authors estimated the price elasticity of import, which was −0.27, −0.44 and −0.26, respectively, and the income elasticity of import was 0.82, 1.51 and 0.72. Jeon (2009) analyses the import equation to China. The price elasticity of import was −0.58 and income elasticity to import 1.77. Thirlwall (1979) estimated the income elasticity to import to several countries, and the coefficient value is between 0.85 and 2.25. Moreno-Brid and Pérez (1999) estimated the income elasticity of import to countries in Central America, and found the coefficient to be between 1.10 and 3.70, the price elasticity of import between −0.44 and −1.63. Holland, Vilela, and Canuto (2004) estimated the income elasticity of import for several Latin American Countries, among which was Brazil. The mentioned estimated elasticity was 2.16, for the period between 1951 and 2000.

10 See: Cavallo, Cottani, and Kahn (1990); Dollar (1992); Razin and Collins (1997); Benaroya and Janci (1999); Acemoglu et al. (2002); Rodrik (2008); Gala (2008); Rapetti et al. (2012); Oreiro and Araújo (2013); Nassif et al. (2015); and Missio et al. (2015).

Additional information

Funding

We are grateful to the Brazilian National Council of Scientific and Technological Development (CNPq) for financial support.