Distribution and Growth Reconsidered : Empirical Results for Six OECD Countries

We analyse the relationship between functional income distribution and economic growth in Austria, France, Germany, the Netherlands, the UK and the USA from 1960 until 2005. The analysis is based on a demand-driven distribution and growth model for an open economy inspired by Bhaduri and Marglin, which allows for either profit- or wage-led growth. We find that growth in France, Germany, the UK and the USA has been wage-led, whereas Austria and the Netherlands have been profit-led. In the case of Austria a domestically wage-led economy changes to profit-led when including the effect of distribution on external trade. The Netherlands, however, are already profit-led without external trade. Our results so far only partially confirm Bhaduri and Marglin's theoretical conclusion that wage-led growth becomes less feasible when the effects of distribution on foreign trade are taken into account