There is a pressing need for policy-relevant long-run models. The ambitious 2030 Agenda commits member states to transformation for sustainable development. Those changes include a dramatic reduction in the carbon intensity of production and consumption, which likely requires substantial structural change in the “mature” economies.
This paper presents a step towards such a model. It is a multi-sector Harrodian-Kaleckian growth model with locally unstable dynamics contained by a Hicksian floor and ceiling. It adopts a Hicksian dynamic that links productivity growth with the functional income distribution. When combined with target-return pricing, this mechanism reproduces two of Kaldor’s stylized facts as long-run tendencies: constant capital productivity and constant profit share. The model features endogenous wages, prices, labour and capital productivities, capital utilization, employment, and labour participation.
At present it lacks government, financial, and foreign sectors, but despite this it exhibits interesting behaviour. The model generates asymmetric business cycles, with a long expansion and a short contraction, as well as structural change and long waves.
The work presented in this paper was funded in part by the Swedish International Development Cooperation Agency (Sida).
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