Relationship between Functional Income Distribution and Aggregate Demand in Iran based on the Post Keynesian Model

Document Type : Research Paper


1 Professor of Econometrics & Social Statistics, Department of Economics, University of Semnan.

2 PhD student of Semnan University


The main aim in this research has been to determining the growth regime in Iran based on an open economy concerning the Bhaduri and Marglin(1990) model.  This model which has been widely used in Post Keynesian economics is a Kaleckian-Post Keynesian macroeconomic model which is based on effective demand. Bhaduri and Marglin(1990) concerning wage as a cost item as well as a component of aggregate demand have considered both profit-led and wage-led regimes to study the effect of functional distribution of income on aggregate demand.  Considering gross operating surplus, compensation to employees, consumption expenditures, investment expenditures, capacity utilization, profit share, nominal currency rate and net exports, the impact of variation of profit share on consumption expenditures share, investment expenditures share and net export share of GDP, was first evaluated in a single equation for 1979 to 2013. Then, the total impact of profit share on total demand was estimated summing up the partial effects. The results show that redistribution in favor of profits results in reduction of consumption expenditures share, increase of investment expenditures share, and also increase in net export share of GDP. Based on the results, the regime of domestic demand in Iran is profit-led, and due to positive impact of profit share on international competitiveness, the total demand regime is also concluded to be profit-led.
 JEL Classifications: E12, E20, E22, E25


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Volume 51, Issue 3 - Serial Number 116
October 2016
Pages 517-539
  • Receive Date: 22 September 2015
  • Revise Date: 21 November 2015
  • Accept Date: 14 February 2016
  • First Publish Date: 22 October 2016