Profit rates in the developed capitalist economies: a time series investigation
DOI:
https://doi.org/10.13133/2037-3643_70.281_1Keywords:
Profit rate, autoregressive model, structural breaks, trendAbstract
This paper examines whether there is empirical evidence to support the hypothesis of a secular decline in the economy-wide profit rates, as predicted by classical economic theories. We specifically consider profit rates in the OECD economies based on the national accounts data contained in the Extended Penn World Table database. We use linear trend, Augmented Dickey-Fuller (ADF) tests, and allow for structural breaks and instabilities in the series. Our results suggest that profit rates in OECD economies exhibited a variety of patterns, including stochastic and deterministic trends, random walk, reversals, as well as stability. The secular decline (fluctuation around a falling deterministic trend) hypothesis is supported for Canada, Portugal and the USA, while secular rise is witnessed for Greece and Norway.
JEL Classification: B5, C22, P17
References
Ashauer D.A. (1988), “Government Spending and the ‘Falling Rate of Profit’”, Economic Perspectives, vol. 12 n. 3, pp. 11-17.
Andrews D. (1993), “Tests for Parameter Instability and Structural Change with Unknown Change Point”, Econometrica, vol. 61 n. 4, pp. 821-856.
Argitis G. (2003), “Finance, Instability and Economic Crisis: The Marx, Keynes and Minsky Problems in Contemporary Capitalism”, presented at the conference Economics for the Future, Cambridge, September 17-19.
Athukorala P.-C. (2000), “Manufactured Exports and Terms of Trade of Developing Countries: Evidence from Sri Lanka”, Journal of Development Studies, vol. 36 n. 5, pp. 89-104.
Bai J., Perron P. (2003), “Computation and Analysis of Multiple Structural Change Models”, Journal of Applied Econometrics, vol. 18 n. 1, pp. 1-22.
Baran P., Sweezy P. (1966), Monopoly Capital: An Essay on the American Economic and Social Order, London: Monthly Review Press.
Basu D. (2015), “A Selective Review of Recent Quantitative Empirical Research in Marxist Political Economy”, Department of Economics Working Papers, n. 2015-05, Amherst: University of Massachusetts.
Basu D., Manolakos P. (2010), “Is There a Tendency for the Rate of Profit to Fall? Econometric Evidence for the US Economy, 1948-2007”, Department of Economics Working Papers, n. 1-1-2010, Amherst: University of Massachusetts.
Brewer A. (1990), Marxist Theories of Imperialism: A Critical Survey, New York: Routledge & Kegan Paul.
Brown R.L., Durbin J., Evans J.M. (1975), “Techniques for Testing the Constancy of Regression Relationships over Time”, Journal of the Royal Statistical Society, Series B, vol. 35 n. 2, pp. 149-192.
Canjels E., Watson M.W. (1997), “Estimating Deterministic Trends in the Presence of Serially Correlated Errors”, Review of Economics and Statistics, vol. 79 n. 2, pp. 184-200.
Chow G.C. (1960), “Tests of Equality between Sets of Coefficients in Two Linear Regressions”, Econometrica, vol. 28 n. 3, pp. 591-605.
Cochrane J.H. (1988), “How Big Is the Random Walk in GNP?”, Journal of Political Economy, vol. 96 n. 5, pp. 893-920.
Cottrell A., Cockshott P. (2006), “Demography and the Falling Rate of Profit”, Indian Development Review, vol. 4 n. 1, pp. 39-59.
Daly K., Broadbent B. (2009), “The Savings Glut, the Return on Capital and the Rise in Risk Aversion”, Global Economics Paper, n. 185, New York: Goldman Sachs Global Economics, Commodities and Strategy Research.
Dickey D.A., Fuller W.A. (1979), “Distribution of the Estimators for Autoregressive Time Series with a Unit Root”, Journal of the American Statistical Association, vol. 74 n. 366, pp. 427-431.
Downe E.A. (1986), “The Behavior of Postwar Rates of Return in Capitalist Countries”, Review of Radical Political Economics, vol. 18 n. 3, pp. 101-110.
Duménil G., Lévy D. (2004), Capital Resurgent. Roots of the Neoliberal Revolution, Cambridge: Harvard University Press.
Edvinsson R. (2005), Growth, Accumulation and Crisis: With New Macroeconomic Data for Sweden 1800-2000, Stockholm: Almqvist & Wiksell International.
Engle R.F., Granger C.W.L. (1987), “Cointegration and Error Correction: Representation, Estimation and Testing”, Econometrica, vol. 55 n. 2, pp. 251-276.
Erixon L. (1987), Profitability in Swedish Manufacturing: Trends and Explanations, Stockholm: Almqvist & Wiksell International.
Erten B. (2011), “North-South Terms-of-Trade Trends from 1960 to 2006”, International Review of Applied Economics, vol. 25 n. 2, pp. 171-184.
Evans P., Karras G. (1994), “Are Government Activities Productive? Evidence from a Panel of US States”, Review of Economics and Statistics, vol. 76 n. 1, pp. 1-11.
Farjoun E., Machover M. (1983), Laws of Chaos: A Probabilistic Approach to Political Economy, London: Verso.
Feigenbaum H.B. (1985), The Politics of Public Enterprise: Oil and the French State, Princeton: Princeton University Press.
Feldstein M., Summers L. (1977), “Is the Rate of Profit Falling?”, Brookings Papers on Economic Activity, vol. 1, pp. 211-228.
Foley D., Marquetti A. (2012), “Extended Penn World Tables: Economic Growth Data Assembled from the Penn World Tables and Other Sources”, available at https://sites.google.com/a/newschool.edu/duncan-foley-homepage/home/EPWT
Giersch H. (1985), “Eurosclerosis”, Kiel Discussion Paper, n. 112, Kiel: Kiel Institute for World Economy.
Glyn A. (2006), Capitalism Unleashed – Finance, Globalisation and Welfare, Oxford: Oxford University Press.
Glyn A. (2007), “Globalisation and Profitability since 1950: A Tale of Two Phases?”, in Shaikh A. (ed.), Globalization and the Myths of Free Trade: History, Theory, and Empirical Evidence, New York: Routledge.
Gough I. (1972), “Marx’s Theory of Productive and Unproductive Labour”, New Left Review, n. I/76, pp. 47-72.
Granger C.W.L., Newbold P. (1974), “Spurious Regressions in Econometrics”, Journal of Econometrics, vol. 2 n. 2, pp. 111-120.
Grossman H. (1992), The Law of Accumulation, London: Pluto Press.
Guillén A. (2014), “Financialization and Financial Profit”, Brazilian Journal of Political Economy, vol. 34 n. 3, pp. 451-470.
Hayashi F., Prescott E.C. (2002), “The 1990s in Japan: A Lost Decade”, Review of Economic Dynamics, vol. 5 n. 1, pp. 206-235.
Hein E. (2016), “Secular Stagnation or Stagnation Policy? Steindl after Summers”, PSL Quarterly Review, vol. 69 n. 276, pp. 3-47.
Heston A., Summers R., Aten B. (2011), “Penn World Table Version 7.0”, Philadelphia: Center for International Comparisons of Production, Income and Prices.
Izquierdo, S. C. (2007), “The Dynamics of the Profit Rate in Spain, 1954-2001”, Review of Radical Political Economics, vol. 39, n. 3, pp. 543-561.
Kaldor N. (1957), “A Model of Economic Growth”, Economic Journal, vol. 67 n. 268, pp. 591-624.
Kambahampati U.S. (1995), “The Persistence of Profit Differentials in Indian Industries”, Applied Economics, vol. 27 n. 4, pp. 353-361.
Keynes J.M. ([1936] 1991), The General Theory of Employment, Interest and Money, Cambridge: Cambridge University Press.
Kliman A. (2012), The Failure of Capitalist Production: Underlying Causes of the Great Recession, London: Pluto Press.
Kuhn P.J. (2002), Losing Work, Moving On: International Perspectives on Worker Displacement, Kalamazoo: W.E. Upjohn Institute for Employment Research.
Li M., Feng X., Zhu A. (2007), “Long Waves, Institutional Changes and Historical Trends: A Study of the Long Term Movement of the Profit Rate in the Capitalist World-Economy”, Journal of World-System Research, vol. 13 n. 1, pp. 33-54.
Lee J., Strazicich M. (2003), “Minimum Lagrange Multiplier Unit Root Test with Two Structural Breaks”, The Review of Economics and Statistics, vol. 85 n. 4, pp. 1082-1089.
Lee J., Strazicich M. (2004), “Minimum LM Unit Root Test with One Structural Break”, mimeo, Boone (NC): Appalachian State University.
Lockett A., Thompson S. (2001), “The Resource-based View and Economics”, Journal of Management, vol. 27 n. 6, pp. 723-754.
Lopez Martinez F., Davila Cano L., Lopez Bernardo J. (2013), “Profits and Extraordinary Profits in the Spanish Economy during the 2000s”, Aestimatio: The IEB International Journal of Finance, vol. 7, pp. 28-47.
Lumsdaine R., Papell D.H. (1997), “Multiple Trend Breaks and the Unit Root Hypothesis”, Review of Economics and Statistics, vol. 79 n. 2, pp. 212-218.
Mahadeva L., Robinson P. (2004), “Unit Root Testing to Help Model Building”, Handbooks in Central Banking, n. 22, London: Centre for Central Banking Studies.
Maniatis T. (1996), “Testing Marx: A Note”, Capital and Class, vol. 20 n. 2, pp. 37-54.
McCloskey D.N. (2014), “Measured, Unmeasured, Mismeasured, and Unjustified Pessimism: A Review Essay of Thomas Piketty’s Capital in the Twenty-First Century”, Erasmus Journal for Philosophy and Economics, vol. 7 n. 2, pp. 73-115.
Marx K. ([1867] 1967), Capital. Volume I, New York: International Publishers.
Minsky H. (1986), Stabilising an Unstable Economy, New Haven: Yale University Press.
Mizuta K. (2015), “Ricardo’s Theory of International Trade and Capital Accumulation”, presented at the 31st Seminar of Ricardo Society, Chu University, August 1.
Mohun S. (2002), “The Australian Rate of Profit, 1965-2001”, Journal of Australian Political Economy, n. 52, pp. 83-112.
Mohun S. (2006), “Distributive Shares in the US Economy, 1964-2001”, Cambridge Journal of Economics, vol. 30 n. 3, pp. 347-370.
Mohun S. (2009), “Aggregate Capital Productivity in the US Economy, 1964-2001”, Cambridge Journal of Economics, vol. 33 n. 5, pp. 1023-1046.
Moore J.R. (1967), The Economic Impact of TVA, Knoxville: University of Tennessee Press.
Moseley F. (1983), “Marx’s Concepts of Productive Labor and Unproductive Labor: An Application to the Postwar U.S. Economy”, Eastern Economic Journal, vol. 9 n. 3, pp. 180-189.
Moseley F. (1988), “The Rate of Surplus Value, the Organic Composition, and the General Rate of Profit in the US Economy, 1947-67: A Critique and Update of Wolff’s Estimates”, American Economic Review, vol. 78 n. 1, pp. 298-303.
Nelson C.R., Kang H. (1984), “Pitfalls in the Use of Time as an Explanatory Variable”, Journal of Business and Economic Statistics, vol. 2 n. 1, pp. 73-82.
Onaran O., Stockhammer E., Grafl L. (2010), “Financialisation, Income Distribution and Aggregate Demand in the USA”, Cambridge Journal of Economics, vol. 35 n. 4, pp. 637-661.
Penrose E.T. (1959), The Theory of the Growth of the Firm, New York: Wiley.
Pesaran M.H., Shin Y., Smith R.J. (2001), “Bounds Testing Approaches to the Analysis of Long Run Relationships”, Journal of Applied Econometrics, vol. 16 n. 3, pp. 289-326.
Poletayev V.A. (1992), ”Long Waves in Profit Rates in Four Countries”, in Kleinknecht A., Mandel E., Wallerstein I. (eds.), New Findings in Long Wave Research, New York: St. Martin Press, pp. 151-168.
Pyo H.K., Nam K. (1999), “A Test of the Convergence Hypothesis by Rates of Return to Capital: Evidence from OECD Countries”, Discussion Paper Series, n. 99-CF-51, Tokyo: Centre for International Research on the Japanese Economy.
Ramirez M.D. (2007), “Marx, Wages, and Cyclical Crises: A Critical Interpretation”, Contributions to Political Economy, vol. 26 n. 1, pp. 27-41.
Rao S.L. (1989), “Public Sector and the Marketing Concept”, Economic and Political Weekly, vol. 25 n. 47, pp. M178-M180.
Reati A. (1986), “The Rate of Profit and the Organic Composition of Capital in West German Industry from 1960 to 1981”, Review of Radical Political Economics, vol. 18 nn. 1/2, pp. 56-86.
Reuten G. (2004), “‘Zirkel Vicieux’ or Trend Fall? The Course of the Profit Rate in Marx’s Capital III”, History of Political Economy, vol. 36 n. 1, pp. 163-186.
Ricardo D. (1951), On the Principles of Political Economy and Taxation, in Sraffa P. (ed.), The Works and Correspondence of David Ricardo. Volume I, Cambridge: Cambridge University Press.
Román M. (1997), Growth and Stagnation of the Spanish Economy. The Long Wave: 1954–1993, Aldershot: Avebury.
Said S.E., Dickey D.A. (1984), “Testing for Unit Roots in ARMA Models of Unknown Order”, Biometrika, vol. 71 n. 3, pp. 599-607.
Schumpeter J.A. ([1942] 1976), Capitalism, Socialism, and Democracy, New York: Harper and Brothers.
Shaikh A. (1992), “The Falling Rate of Profit as the Cause of Long Waves: Theory and Empirical Evidence”, in Kleinknecht A. (ed.), New Findings in Long Wave Research, London: Macmillan.
Shaikh A.M. (2016), Capitalism: Competition, Conflict, Crises, New York: Oxford University Press.
Shaikh A.M., Tonak E.A. (1994), Measuring the Wealth of Nations: The Political Economy of National Accounts, Cambridge: Cambridge University Press.
Steindl J. (1952), Maturity and Stagnation in American Capitalism, Oxford: Blackwell.
Stock J.H. (1994), “Unit Roots, Structural Breaks and Trends”, in Engle R.F., McFadden D.L. (eds.), Handbook in Econometrics, Vol. 4, Amsterdam: North Holland, pp. 7-53.
Stockhammer E. (2012), “Financialisation, Income Distribution and the Crisis”, Investigación Económica, vol. 71 n. 279, pp. 39-70.
Sweezy P. (1962), The Theory of Capitalist Development. Principles of Marxian Political Economy, London: Dennis Dobson.
Sylvain A. (2001), “Rentabilité et Profitabilité du Capital: le Cas de Six Pays Industrialisés”, Économie et Statistique, nn. 341-342, pp. 129-152.
Tarbuck K.J. (1983), “Marx: Productive and Unproductive Labour”, Studies in Political Economy, vol. 12, pp. 81-102.
Tescari S., Vaona A. (2014), “Regulating Rates of Return Do Gravitate in US Manufacturing!” Metroeconomica, vol. 65 n. 3, pp. 377-396.
Tsoulfidis L., Paitaridis D. (2012), “Revisiting Adam Smith’s Theory of the Falling Rate of Profit”, International Journal of Social Economics, vol. 39 n. 5, pp. 304-313.
Tutan M., Campbell A. (2005), “The Post 1960 Rate of Profit in Germany”, Working Papers in Economics, n. 05/01, Izmir: Izmir University of Economics.
Weisskopf T. (1979), “Marxian Crisis Theory and the Rate of Profit in the Postwar US Economy”, Cambridge Journal of Economics, vol. 3 n. 4, pp. 341-378.
Wolff E.N. (2003), “What’s Behind the Rise in Profitability in the US in the 1980s and 1990s?” Cambridge Journal of Economics, vol. 27 n. 4, pp. 479-499.
Zachariah D. (2009), “Determinants of the Average Profit Rate and the Trajectory of Capitalist Economies”, Bulletin of Political Economy, vol. 3 n. 1, pp. 13-36.
Zivot E., Andrews D.W.K. (1992), “Further Evidence on the Great Crash, the Oil-price Shock, and the Unit-root Hypothesis”, Journal of Business and Economic Statistics, vol. 10 n. 3, pp. 251-270.
Downloads
Published
How to Cite
Issue
Section
License
