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Is Planet Earth as a Whole Likely to be Wage-Led?

Abstract
Evidence regarding the relationship between distribution, demand, and growth in the short run has been mixed. Open economy models that create the possibility of beggar-thy-neighbor growth offer one theoretical explanation for why this may be expected. Several authors have argued recently, however, that even if demand and growth are profit-led in many individual countries, the global economy is likely to be wage-led since the planet as a whole runs balanced trade. This paper finds that this argument, although intuitively appealing, does not hold up to careful examination. Although the world economy as a whole is a closed system, it is not isomorphic to a closed economy, thanks to repercussion effects, relative price movements, and cross-country heterogeneity. The effects of global redistribution depend on the nature of its constituent economies.
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2017-01-01
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