The Possibility of “Consumption-Driven, Profit-Led Growth"

January 1, 2016

We first show that, with a Kaleckian structure that is consistent with Pasinetti (1962), the relationship between distribution and growth is more robust than conventional wisdom suggests.

Next, we extend our model by incorporating borrowing and emulation effects into workers' consumption behavior, under different assumptions about how debt is serviced. Our results demonstrate that borrowing and emulation transform the relationship between distribution and growth, giving rise to the possibility of a "consumption-driven, profit-led" growth regime (Kapeller and Schutz, 2015) and what we call the "paradox of inequality." A key conclusion is that the wage-or -profit led characteristics of the growth process, rather than being invariant, can be altered by social constructs such as borrowing and consumption norms that change over time.

Authors: Mark Setterfield, Yun K. Kim
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