Analysis of the relationship between functional income distribution and economic growth by wage-led growth approach

The relationship between functional income distribution and economic growth in Turkish Economy has begun to be discussed increasingly especially in recent years. The aim of this study to examine the relationship between functional income distribution and economic growth in Turkey based on wage-led growth approach with saving behaviours. Current econometric method are used in this study to investigate the relationship between functional income distribution and economic growth. The estimation is made by ARDL bound testing in investigation the long-term effects with data for households in Turkey. In this context, as a feature of the ARDL bound testing, it is estimated whether there is a cointegration between the variables in the model. Thus, the relationship between functional income distribution and economic growth can be predicted through savings. ARDL model estimation method is used because of its ability to analyze with limited data set in long-term analysis of this study. With this model, the long-run relationship between labor and entrepreneur savings and gross fixed capital ratios which representing economic growth are examined. Findings in this study suggest that labour savings have a positive and significant impact on the share of profit in total income in both short and long-term. Besides, the savings of entrepreneur affect the profit share in total income negatively.