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Cambridge Journal of Economics Advance Access originally published online on August 19, 2007
Cambridge Journal of Economics 2008 32(1):147-160; doi:10.1093/cje/bem012
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© The Author 2007. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.

On the dynamics of profit-led and wage-led growth

Amit Bhaduri*

* Financial support from Fonds zur Forderung der wissenschaftlichen Forschung (FWF), Vienna for this project (no.p18419-G05) at the Vienna Institute for International Economics (WIIW) is gratefully acknowledged

Address for correspondence: A-12 IFS Apartments, Mayur Vihar, New Delhi 110091, India; email: abhaduri40{at}hotmail.com

This paper examines how variable output and profit share jointly determine investment and saving, while the difference between investment and saving drives the changes in output and profit share. Analysis of the resulting pair of differential equations yields novel implications for the multiplier process. In this more general framework a number of separate strands of the Keynesian-inspired literature can be understood. In particular, the model incorporates both forced saving and profit squeeze to analyse the stability of the dynamical system, and brings out the complex relation between in and out-of-equilibrium profit-led and wage-led regimes.

Key Words: Profit-led • wage-led • In and out-of-equilibrium dynamics • Local • Liapunov stability • Stable–unstable bifurcation • Forced saving • Profit squeeze • Multiplier

JEL classifications:: B22, C62, D33, E12, E22, E31

Manuscript received May 20, 2005; final version received February 20, 2007.


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