Growth with Unused Capacity and Endogenous Capital Depreciation

Abstract

The paper contributes to the debate on growth and distribution in a non‐mainstream perspective. It looks at the role that capacity utilization plays in the process of growth under the hypothesis that the rate of capital depreciation is a function of the degree of capacity utilization. Our hypothesis implies results partly different from those obtained by other models in which capacity utilization plays a key role. In particular, a varying rate of depreciation affects the conditions under which distributional changes in favor of wages affect the rate of growth positively.

Household borrowing and the possibility of ‘consumption-driven, profit-led growth’*

“…The Bhaduri-Marglin investment function can be thought of as weakening the "strong" accelerator effect characteristic of the canonical Kaleckian investment function(Blecker, 2002, p.135).3 See, for example, the dissenting views ofMott and Slattery (1994).4 Some of these results were contemporaneous with those ofMarglin and Bhaduri (1990) andBhaduri and Marglin (1990) -see especiallyBlecker (1989), who showed that international price competition increases the possibility of a profit-led regime. The identification of new influences on the wage-or profit-led character of the growth process continues: see, for example,Patriarca and Sardoni (2014), who identify the rate of depreciation as affecting the response of growth to redistributions of income.5 Consumption-driven, profit-led growth is one example of a general class of growth regimes that Hein and Dodig (2014), followingCordonnier (2006), term "profits without investment" regimes.…”