The Investment Function Revisited: Disciplining Capital in Korea

Seguino, Stephanie (1999): The Investment Function Revisited: Disciplining Capital in Korea. Published in: Journal of Post-Keynesian Economics , Vol. 22, No. 2 (1999): pp. 313-338.

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." Firms appear to be constrained by these factors to respond to wages hikes by adopting technological upgrades, thereby raising productivity and maintaining export competitiveness.

• Item Type: MPRA Paper
• Language: English
• Keywords: Distribution, wages, investment, South Korea
• Subjects: D - Microeconomics > D3 - Distribution > D33 - Factor Income Distribution; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E22 - Investment ; Capital ; Intangible Capital ; Capacity; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights

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