A Post Keynesian Perspective on 21st Century Economic Problems A Post Keynesian Perspective on 21st Century Economic Problems Edited by Paul Davidson Holly Chair of Excellence in Political Economy, The University of Tennessee, Knoxville, USA Edward Elgar Cheltenham, UK • Northampton, MA, USA © Paul Davidson, 2002 © All rights reserved No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the prior permission of the publisher Published by Edward Elgar Publishing Limited Glensanda House Montpellier Parade Cheltenham Glos GL50 1UA UK Edward Elgar Publishing, Inc 136 West Street Suite 202 Northampton Massachusetts 01060 USA A catalogue record for this book is available from the British Library Library of Congress Cataloguing in Publication Data A post Keynesian perspective on twenty-first century economic problems / edited by Paul Davidson International Post Keynesian Workshop (6th : 2000 : Knoxville, Tenn.) p cm Includes index Keynesian economics–Congresses Economic history–Congresses I Title: Post Keynesian perspective on 21st century economic problems II Davidson, Paul, 1930- III Title HB99.7 I579 2000 330.9Ј05–dc21 2001050139 ISBN 84064 616 Printed and bound in Great Britain by MPG Books Ltd, Bodmin, Cornwall Contents vii ix x xi List of figures List of tables List of contributors Preface Latin America’s quasi-stagnation Luiz Carlos Bresser-Pereira Neomonetarist dreams and realities: a review of the Brazilian experience Alfredo Saad-Filho and Lecio Morais 29 A critique of the proposal for monetary union in Mercosur Fernando Ferrari-Filho The balance of payments-constrained growth model and the limits to export-led growth Robert A Blecker 69 A new approach to test the balance of payments-constrained growth model, with reference to the Mexican economy Juan Carlos Moreno Brid 89 56 Banks’ liquidity preference and financial provision Penelope Hawkins 108 Racial/ethnic disparity and economic development Willam Darity, Jr 126 Saving and investment: the theoretical case for lower interest rates Basil Moore 10 Demand constraints and the new economy Marc-André Pigeon and L Randall Wray Full employment policies must consider effective demand and structural and technological change: a prime point of Pasinetti’s political economy Mathew Forstater v 137 158 195 vi A Post Keynesian Perspective on 21st Century Economic Problems 11 Unemployment and profitability: the case of Spain Jesus Felipe 12 VAT reduction for consumption-oriented, labor-intensive services in the European Union: a stimulus to employment? The case of Germany Hubert Hieke Index 216 244 251 List of figures 2.1 2.2 6.1 6.2 6.3 6.4 9.1 9.2 9.3 9.4 9.5 9.6 9.7 9.8 9.9 9.10 9.11 9.12 9.13 9.14 11.1 11.2 11.3 11.4 11.5 Brazil: Monthly inflation rate, May 1990–December 1999 (%) Brazil: Real interest rates, 1990–1999 (%) Spectrum of financial provision during a period of high liquidity preference Spectrum of financial provision during a period of lower liquidity preference US credit extension/GDP ratio and the discount rate US credit extension/GDP ratio and GDP growth Per capita gross domestic product, 1966–96 The employment rate, 1966–96 Productivity, 1966–96 EPT schedule for Western Europe, Japan, other developed countries and the United States, 1970–97 (%) Economic growth: the Western European story, 1970–95 Economic growth: the Japanese story, 1970–95 Economic growth: the US story, 1970–95 Economic growth: Other developed countries, 1970–95 The three financial balances as a percentage of GDP, 1961–2006 Budget deficit as a percentage of GDP, 1980–89 Private sector balance as a percentage of GDP, 1980–99 G7 average: Private sector balance as a percentage of GDP and annual growth of nominal GDP, 1980–98 Japan’s 1981–2000 budget balance as a percentage of GDP superimposed on budget balance in Canada and the United States for 1991–2000 Japan’s 1981–1993 growth rate superimposed on 1991–2000 economic growth in Canada and the United States Unemployment rate (%) Profit rate on invested capital (%) Labor share in value added (%) Capacity utilization rate (%) Recursive OLS estimates of upr (Ϫ1) in the ADF regression and two times the standard error vii 36 37 118 119 122 123 171 172 175 176 177 178 178 179 184 186 186 187 191 192 220 223 224 227 229 viii 11.6 11.7 A Post Keynesian Perspective on 21st Century Economic Problems Recursive estimates of ECT (Ϫ1) (equation 8) and two times the standard error Rolling OLS estimates of ECT (Ϫ1) (window sizeϭ10) 237 237 List of Tables 1.1 1.2 2.1 2.2 2.3 2.4 2.5 2.6 4.1 5.1 5.2 5.3 5.4 8.1 11.1 11.2 11.3 11.4 11.5 11.6 Rates of per capita GDP growth compared Outstanding Brazilian and Latin American foreign debt Brazil: Gross domestic product, 1990–99 Brazil: Balance of payments, selected variables, 1990–99 Brazilian manufacturing industry, import coefficients, 1993 and 1996 Brazil: Foreign participation in mergers and acquisitions and purchases of minority stakes in domestic companies, 1990–99 Brazil: Fiscal balance and domestic public debt, 1991–98 Brazil: Indexation and maturity of central government securities US merchandise imports, by country of origin, selected countries and years, 1979–97 Mexico: Dickey–Fuller and augmented Dickey–Fuller tests on selected variables to estimate long-run import demand, 1967–99 Mexico: Statistical specification of VAR systems to estimate long-run import demand (based on annual data, 1967–99) Mexico’s long-term import demand, 1967–99 (estimated with Johansen’s cointegration procedures) Test of the empirical relevance of Thirlwall’s Law (original and extended versions) for the Mexican economy, 1967–99 (based on McCombie’s procedure) Components of the national balance sheet Augmented Dickey–Fuller test, 1970–98 Perron’s tests for a unit root, unemployment rate, 1970–98 Johansen’s cointegration test, 1970–98 Normalized cointegration vectors (Ј) and adjustment coefficients (␣) Change in Spain’s unemployment rate (⌬upr); OLS estimates of equation (5), 1970–98 Error correction model of Spain’s unemployment rate; OLS estimates of equation (8), 1970–98 ix 10 33 35 40 41 44 45 81 97 98 100 103 143 228 230 231 231 234 236 ... we explain that, with the same politicians, Latin America was able to achieve reasonable macroeconomic A Post Keynesian Perspective on 21st Century Economic Problems stability and high rates of... subordinate internationalism was back in place Latin America’s quasi-stagnation 21 Now, however, it had a ‘good’ economic theory argument behind it As international financial markets and mainstream... 1990s, trade and capital account liberalization seem to abolish the balance of payments constraint They can attract 32 A Post Keynesian Perspective on 21st Century Economic Problems capital inflows