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Omitted-variable bias in demand-regime estimations: the role of household credit and wage inequality in Brazil

Author

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  • Julia Burle

    (University of São Paulo (FEA-USP), Brazil)

  • Laura Carvalho

    (University of São Paulo (FEA-USP), Brazil)

Abstract

In the Kaleckian theoretical framework, an economy's demand regime is characterized as either wage-led or profit-led depending on the relative effect of an increase in the wage share on consumption, investment, and net exports. Based on this framework, a vast empirical literature has focused on estimating demand regimes in numerous countries. Although they contribute to a better understanding of the relationship between distribution and demand in different economies and time periods, they also face various critiques on theoretical and methodological grounds. This paper aims to address one dimension of these critiques by investigating a potential omitted-variable bias in the estimated relationship between distribution and demand in the Brazilian economy between 1997 and 2014. Our results suggest that when controlling for some of the relevant factors in Brazil's inclusive growth experience of the early twenty-first century, namely wage inequality, commodity prices, and household credit, the empirical characterization of the Brazilian demand regime as profit-led loses its statistical significance. Also, the demand-regime definition was found to be most sensitive to intra-wage distribution, confirming previous findings in the Kaleckian empirical literature for the Brazilian case.

Suggested Citation

  • Julia Burle & Laura Carvalho, 2021. "Omitted-variable bias in demand-regime estimations: the role of household credit and wage inequality in Brazil," Review of Keynesian Economics, Edward Elgar Publishing, vol. 9(3), pages 368-393, July.
    • Handle: RePEc:elg:rokejn:v:9:y:2021:i:3:p368-393
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    Cited by:

    1. Paul Carrillo‐Maldonado, 2023. "Partial identification for growth regimes: The case of Latin American countries," Metroeconomica, Wiley Blackwell, vol. 74(3), pages 557-583, July.

    More about this item

    Keywords

    demand regimes; functional distribution of income; Brazilian inclusive growth; omitted-variable bias; distribution of wage;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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