Reconsidering the Investment-Profit Nexus in Finance-Led Economies: An ARDL-Based Approach

Abstract

A Post-Keynesian growth model is developed, in which financial variables are explicitly taken into account. Variants of an investment function are estimated econometrically, applying the ARDL (auto-regressive distributed lag)-based approach proposed by Pesaran etal. (Journal of Applied Econometrics, Vol. 16, No. 3, pp. 289-326). The econometric results are discussed with respect to a remarkable phenomenon that can be observed for some important OECD countries since the early 1980s: accumulation has generally been declining while profit shares and rates have shown a tendency to rise. We concentrate on one potential explanation of this phenomenon, which is particularly relevant for the USA and relies on a high propensity to consume out of capital income.