Demand-led Growth and Long-run Convergence in a Neo-Kaleckian Two-sector Model

This paper analyzes a two-sector model, with consumption and investment sectors, which incorporates both Kaleckian and Classical views. Starting from a model where investment depends on actual profit rates and rates of capacity utilization, we characterize three regimes with different investment functions and specific adjustment mechanisms to bring about a uniform rate of profit and convergence between the actual and the normal rates of capacity utilization. We find that the paradox of thrift holds in the long run for all regimes. With regards to income distribution, results concerning wage-led growth and the paradox of costs are more ambiguous. The reproportioning of the capital stock between the two sectors is also discussed. We conclude that our analysis provides some justification for using simple one sector Kaleckian models, since the results achieved with the two-sector model are roughly in conformity with those of the one-sector model, depending on the closure being used.