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The investment function revisited : Disciplining capital in Korea

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Frame of Image ) version of “The Investment Function Revisted: Disciplining Capital in Korea,” Journal of Post-Keynesian Economics 22(2): 313-38. For access to the published version, go to http:// www.mesharpe.com/journals.asp. The author wishes to acknowledge helpful discussions with Bill Gibson, Robert Blecker, and Jane Knodell on the ideas presented in this paper. The Investment Function Revisited: Disciplining Capital in Korea Abstract Post-Keynesian and Marxian macro models assume that wage increases that lower profits have an adverse impact on investment spending. The experience of Korea during the period 19751993 contradicts this assumption. This paper reports results obtained from estimating a modified neo-Kaleckian investment function that examines the impact of increases in the wage share on business spending. Results of the Granger tests that assess the direction of causality between wages, investment, and productivity are also given. Tests indicate that lagged values of the wage share of income have a positive impact on investment. There are several explanations for this, most of which stem from restrictions on foreign direct investment, and the government's ability to discipline capital through its control over loanable funds coupled with the use of measurable benchmarks in export sales in return for access to subsidized credit and other carrots. Firms appear to be constrained by these factors to respond to wages hikes by adopting technological upgrades, thereby raising produ


Full Text
Title The investment function revisited
Similar Titles
Sub Title

Disciplining capital in Korea
Material Type Reports
Author(English)

Seguino, Stephanie

Publisher

University of Vermont
Date 1999
Pages 39
Subject Country South Korea(Asia and Pacific)
Language English
File Type Documents
Original Format pdf
Subject Economy < Economic System
Economy < Direct Investment
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Abstract

Post-Keynesian and Marxian macro models assume that wage increases that lower profits have an adverse impact on investment spending. The experience of Korea during the period 1975-1993 contradicts this assumption. This paper reports results obtained from estimating a modified neo-Kaleckian investment function that examines the impact of increases in the wage share on business spending. Results of the Granger tests that assess the direction of causality between wages, investment, and productivity are also given. Tests indicate that lagged values of the wage share of income have a positive impact on investment. There are several explanations for this, most of which stem from restrictions on foreign direct investment, and the government's ability to discipline capital through its control over loanable funds coupled with the use of measurable benchmarks in export sales in return for access to subsidized credit and other "carrots." (The rest omitted)