Global financial flows in Kaleckian models of growth and distribution: A survey
A survey Pablo G. Bortz
Kaleckian models of growth and distribution were developed in the early 1980s to account for an alternative view regarding the relation between (functional) income distribution and economic growth. Contrary to the arguments prevalent in the mainstream, and even within Post Keynesian authors such as Joan Robinson and Nicholas Kaldor (in their works in the 1950s and early 1960s), early Kaleckian authors argued that higher real wages were associated with higher, not lower, rates of economic activity and capital accumulation (Rowthorn 1981, Dutt 1984, Amadeo 1986). Later work tended to nuance this corollary, by emphasizing the double role of wages, both as a source of (consumption) demand and as a cost to producers, affecting in contradictory ways their profitability. This argument was reinforced by the impact of rising wages on international competitiveness (Bhaduri and Marglin 1990).1
Together with Bhaduri and Marglin’s work, Blecker (1989) ignited a rich literature that included and discussed the impact of distributive changes (in mark-ups, wages, and income policies) on the balance of trade performance and its implications for the possibility of coexistence of rising real wages and higher economic growth. In order to understand this impact, it is very important to know the source of rising real wages: if it is due to increasing nominal wages, then it is likely to have a detrimental impact on external competitiveness and economic activity, while if the reason behind is a fall on mark-ups, then it is likely that the balance of trade improves along aggregate demand. This insight was taken over by Von Arnim (2011) and Cassetti (2012) to explore alternative income policies while maintaining the main corollary of Kaleckian models, that rising real wages need not be detrimental to capital accumulation and economic activity.
Notwithstanding the extensive literature on open-economy Kaleckian models, up until recently all the analyses concerned solely the balance of trade and tended to ignore international financial flows. Even otherwise detailed analyses of the impact of devaluations on income distribution and economic growth, such as Blecker (2011) and Ribeiro et al. (2017), consider only transmission channels through the balance of trade. In recent decades, however, global
financial flows have increased more than global GDP (Akyiiz 2014, Bortz and Kaltenbrunner 2018). Developing countries, in particular, have experienced a surge in corporate external indebtedness (Chui et al. 2016, Bruno and Shin 2017), most of it denominated in a foreign currency.
The gap in the literature has narrowed in recent years, however, and this chapter surveys the different lines adopted to try to include capital account factors into Kaleckian models. Most of these new works deal with net capital flows, i.e. with the capital account balance considered as a whole. There are some recent articles, however, that explore the effects of gross financial flows on their own, i.e. rising corporate/public indebtedness without paying too much attention to the external assets of said economy.
The chapter is structured as follows. The next section will describe the first model, to our knowledge, that combined the impact on economic growth of changes to income distribution and the current account balance, developed by La Marca (2005, 2010). Section 3 will review Kohler (2017), who analyses external debt sustainability in a fixed-exchange rate regime along different demand regimes. Section 4 describes Guimaraes Coelho and Perez Caldentey (2018) s model, which mixes Minskyan insights regarding the dynamics of the (external) leverage ratio of an economy with a Kaleckian model of growth and distribution. Finally, Section 5 presents the work of Bortz, Michelena and Toledo (2018, 2019) that looks at the impact of exogenously driven external inflows on economic activity and income distribution, mediated by their impact on the exchange rate and balance sheets.