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Do Low Wages Stimulate Investment? An analysis of the relationship between distribution and investment in Turkish private manufacturing industry

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  • Ozlem Onaran
  • Nurhan Yenturk

Abstract

This study analyses the relative impact of profitability and demand on accumulation in Turkish private manufacturing industry on the basis of the theoretical framework outlined by Marglin & Bhaduri (1990). The main motivation behind this analysis is to shed light on the demand aspects of the slowdown in accumulation in the manufacturing industry despite the increase in profitability during the structural adjustment episode. For this purpose, the ratio of investment to value-added is estimated as a function of the profit share and an accelerator term, namely the growth rate of value-added, using panel data for the 26 industries of the private manufacturing sector. The results show that investment is not responsive to the profit share, whereas growth has a consistent positive impact. This result is significant in explaining the inability of pro-capital income policies to stimulate manufacturing investments throughout the export-promotion era. The export boom maintained by the use of the existing capacity rather than by new investments shows the limits of export demand to compensate for the fall in domestic consumption out of wages. The results make a strong case against the argument that profitability enhances accumulation. Evidence shows that it is not possible to enhance accumulation and long-term potential for growth simply based on promoting profitability, without paying attention to the demand aspects.

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  • Ozlem Onaran & Nurhan Yenturk, 2001. "Do Low Wages Stimulate Investment? An analysis of the relationship between distribution and investment in Turkish private manufacturing industry," International Review of Applied Economics, Taylor & Francis Journals, vol. 15(4), pages 359-374.
    • Handle: RePEc:taf:irapec:v:15:y:2001:i:4:p:359-374
    DOI: 10.1080/02692170110081912
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    References listed on IDEAS

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    Cited by:

    1. Ozlem Albayrak, 2020. "Household Consumption, Household Indebtedness, and Inequality in Turkey: A Microeconometric Analysis," Economics Working Paper Archive wp_954, Levy Economics Institute.
    2. Özlem Onaran, 2006. "Speculation-led growth and fragility in Turkey: Does EU make a difference or "can it happen again"?," Department of Economics Working Papers wuwp093, Vienna University of Economics and Business, Department of Economics.
    3. Ozlem Onaran, 2009. "Wage share, globalization and crisis: the case of the manufacturing industry in Korea, Mexico and Turkey," International Review of Applied Economics, Taylor & Francis Journals, vol. 23(2), pages 113-134.
    4. Özlem Onaran & Engelbert Stockhammer, 2002. "Two Different Export-Oriented Growth Strategies under a Wage-led Accumulation Regime: à la Turca and à la South Korea," Working Papers wp38, Political Economy Research Institute, University of Massachusetts at Amherst.
    5. Nursel AYDINER‐AVSAR & ÖZlem ONARAN, 2010. "The Determinants Of Employment: A Sectoral Analysis For Turkey," The Developing Economies, Institute of Developing Economies, vol. 48(2), pages 203-231, June.
    6. Özlem Onaran, 2016. "Wage- versus profit-led growth in the context of international interactions and public spending: The political aspects of wage-led recovery," Working Papers PKWP1603, Post Keynesian Economics Society (PKES).
    7. Deniz Güvercin, 2020. "Boundaries on Turkish export-oriented industrialization," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 9(1), pages 1-15, December.
    8. Baslevent, Cem & Onaran, Ozlem, 2004. "The Effect of Export-Oriented Growth on Female Labor Market Outcomes in Turkey," World Development, Elsevier, vol. 32(8), pages 1375-1393, August.

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