Competitiveness, Income Distribution and Economic Growth in a Small Economy

14 Pages Posted: 26 Mar 2008 Last revised: 7 Apr 2008

See all articles by José Antonio Cordero

José Antonio Cordero

Escuela de Economia, Universidad de Costa Rica

Date Written: February 2008

Abstract

The 1980s saw the publication of several very influential works within the post keynesian tradition on growth and distribution. With Kaleckian mark-up pricing, and a flexible rate of capacity utilization in the investment function, these models indicated that wages and growth are negatively correlated. In this article I extend the literature within this tradition, and look into the feasibility of wage-led growth: it is shown that, in small economies, international competitiveness is a more relevant determinant of effective demand and growth. The paper also develops a dynamic system that generates a negative association between outward orientation policies and income distribution. But it is shown that this pattern may be broken with an institutional framework that encourages productivity growth when international competitiveness declines. The article concludes by arguing that government intervention is necessary to create a more favorable interaction between economic openess and income distribution. Finally, the model is able to generate endogenous growth.

Keywords: Growth, Distribution, Competitiveness, Policy

JEL Classification: E12, F41, O43

Suggested Citation

Cordero, José Antonio, Competitiveness, Income Distribution and Economic Growth in a Small Economy (February 2008). Available at SSRN: https://ssrn.com/abstract=1113189 or http://dx.doi.org/10.2139/ssrn.1113189

José Antonio Cordero (Contact Author)

Escuela de Economia, Universidad de Costa Rica ( email )

San Jose
Costa Rica
(506) 2511-3300 (Phone)

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