Modernizing the Kaleckian Model: an endogenous market structure

The central motivation of this article is to endogenous market structure (free entry) in the Kaleckian model. Using this model, we find that the model is unstable under a wage-led growth regime when the real interest rate is constant, but stable under a profit-led growth regime. On the other hand, if the interest rate is related to the growth rate, the stability condition depends on not only the growth regime but also the response between the interest rate and the growth rate. In either case, a decrease in the entry barrier increases the real wage, and decreases (increases) the growth rate under a profit (wage)-led growth regime, although an increase in income distribution for workers has no effect on these parameters. Hence, from the viewpoint of economic policy, the Kaleckian model cannot provide a theoretical foundation for increase income distribution for workers for a higher growth rate. Rather, the Kaleckian model is a useful framework for discussing goods market policy aimed at a higher growth rate.