Distribution and Growth in a Multi-Sector Open Economy with Excess Capacity

This paper deals with a multi-sector open economy in which the desired rate of accumulation is an increasing function of both the degree of capacity utilization and the aggregate profit share. It is shown that nothing can be said a priori about the long-period relationship between the real wage rate (or the real exchange rate), the degree of capacity utilization, the profit rate and the growth rate. In the final analysis this is due to the fact that, in a world of heterogeneous capital goods, the aggregate capital-capacity ratio can change in an apparently complicated way as the real wage changes.