A study on the relationship between distribution and growth in the context of post-keynesian economics: The case of Turkey

Following the rise of supply-side economics and the mainstream consensus on the real wage growth restraint to restore profitability as a necessary condition for promoting investment, growth, and productivity since the 1980s, wage share has substantially declined in almost all developing countries. Whereas the last few decades have seen a remarkable downward trend in wage share and rise in personal income inequality, pro-capital redistribution of income has failed to stimulate growth, accumulation, and productivity. Current economic orthodoxy has based on a weak assumption that neglects the dual role of wages as a cost to firms as well as the main source of consumption and demand. This dissertation aims to investigate the relationship between effective demand, income distribution, and labor productivity both theoretically and empirically in the context of Post-Keynesian/Kaleckian theory. In contrast to previous Kaleckian distribution and growth models that mostly based on the assumption of exogenous profit share, we deal with a Kaleckian dynamic model of accumulation, growth, and distribution in which the distribution of income and labor productivity are endogenized by Rowthorn's conflicting claims over distribution by workers and firms and the Kaldor-Verdoon law, respectively. This Kaleckian macro model is tested by using a structural vector autoregression (SVAR) model using annual time series data for Turkey for the period 1970-2006 in a system of four variables: investment, capacity utilization rate, adjusted wage share, and labor productivity growth. In the empirical part of the study, we have shown that an increase in wage share stimulates investment, growth and capacity utilization. Besides wage-led demand regime findings, the economy also shows the profit-squeeze pattern. Keywords: Income Distribution, Effective Demand, Endogenous Growth, wage-led growth, Kaleckian models