Rudiger von Arnim

Redistribution in a Neo‐Kaleckian Two‐Country Model

We investigate the interaction between demand-driven growth and income distribution in open economies, by combining expenditure-switching and demand spillover effects in a neo-Kaleckian two country model. First, we specify elasticities of wage share and real exchange rate to the money wage relative to labor productivity, in order to precisely describe the distributive pass-through from money wages to the labor share and the real exchange rate. Second, we analyze the demand effects of an increase in the money wage for given labor productivity (a redistribution towards labor) in both Home and Foreign country, as well as globally. We derive closed form results for two identical countries. These results indicate that redistribution towards labor at Home: (i) always increases growth globally if Home is wage-led, but can lead to lower growth at Home relative to Foreign; and (ii) will always imply lower growth at Home relative to Foreign if Home is profit-led, but can still be growth-enhancing at Home. Thus, to the extent that countries are concerned with their relative economic performance, a fallacy of composition can emerge. Numerical simulations suggest that these fallacies could indeed occur. As a consequence, ‘returns to coordination’ over international labor policies might be substantial.

WAGE POLICY IN AN OPEN-ECONOMY KALECKI–KALDOR MODEL: A SIMULATION STUDY

This paper discusses a Post-Keynesian model of income, production and trade. The one-country, one-sector model features Kaleckian investment demand, Kaldorian productivity and a labor market module based on a wage-price spiral. The model is first presented for a closed economy with exogenous real wages; second, for a closed economy with endogenous real wages; third, for an economy open to trade with endogenous real wages. Simulations with different calibrations show key characteristics of the model. Monte Carlo simulations over reasonable parameter ranges shed some light on the effectiveness of wage policies in open economies.

The impact of commodity price shocks on commodity dependent countries (Burkina Faso, Ethiopia and Mozambique)

Many least developed countries (LDCs) face commodity dependence on the export and import side. This paper develops a structuralist computable general equilibrium model for commodity-dependent LDCs and simulates global commodity price shocks for Burkina Faso, Ethiopia and Mozambique. Results show important macroeconomic and distributional effects. Although increasing export commodity prices are beneficial, the high correlation with import commodity prices causes low or even negative combined effects. The magnitude of effects depends on the degree of import and export dependence, the production structure of the key commodity sectors and policies that determine the distribution of windfall profits.

Rethinking international trade

Post-Keynesian economics (mostly) focuses on macroeconomic phenomena, whereas theories of international trade are geared towards microeconomics. The crucial dividing line is Say’s Law: standard trade theory concerns the cross-country exchange of goods and services on the assumption of full employment. In contrast, post-Keynesian analysis of cross-border activity builds on the assumption that demand is the binding constraint. This chapter reviews these themes from a critical point of view, by first broadly surveying mainstream trade theories, and second contrasting these with post-Keynesian ideas.

Rebalancing through expenditure and price changes

This paper puts forth a Neo-Kaleckian open economy model of two countries in order to investigate adjustment of US–China external imbalances. First, a stylized fixed mark-up model is presented, and discussed based on graphical analysis. Second, we present estimates of bilateral income and price elasticities of imports. Third, we employ the model for simulation analysis. Specifically, we randomly distribute expenditure change across government, investment and imports and calculate the exchange rate change necessary to lead to an equal change in the bilateral external imbalance. Doing so repeatedly allows us to estimate probability distributions of endogenous variable changes.