Are Kaleckian models relevant for the long run?

In this paper, we compare two alternative heterodox approaches to the analysis of long run economic growth. In the Classical approach accumulation is governed in the last instance by households saving choices and the normal degree of capacity utilisation is exogenous; in the Kaleckian approach capital accumulation is driven by an exogenous component, representing the Keynesian animal spirits and the normal degree of capacity utilisation is endogenous. We adopt a common framework based on the following assumptions. Firstly, we frame the analysis in discrete time. Secondly, we introduce a nonlinearity into the pricing equation. Finally, we introduce an explicit mechanism incorporating firms’ constant effort to bring together the current and the normal degree of capacity utilisation. We also explore the dynamic properties of the Classical and Kaleckian specifications of the basic model. For both specifications, we show that, when the steady growth path is not an attractor, the comparative statics properties of the model do not always hold. Economic growth and profitability could both be either demand or supply led depending on the value of the parameters.