A Dynamic Analysis of Demand and Productivity Growth in a Two-sector Kaleckian Model

Abstract

This study extends a two-sector Kaleckian model of growth and income distribution by incorporating the dynamics of labour productivity growth. The economy is composed of investment goods and consumption goods producing sectors, with the sectoral demand and productivity growth interaction dynamically formalized. The study analyses the conditions for the cyclical demand and productivity growth phenomena in a two-sector economy. The model reveals that each sector may present a different response in capacity utilization rate to a change in sectoral income distribution. These phenomena are specific to two-sector models, and cannot be observed with a conventional aggregate growth model