We analyze the paradox of thrift in a two-sector Kaleckian growth model. We consider an economy with one consump-tion and one investment good, differential sectoral mark-ups and profit rates equalization. We show that when the investment function depends on aggregate capacity utilization and on the aggregate profit share (the Bhaduri– Marglin investment function) the paradox of thrift in its growth ver-sion may fail if mark- ups are higher in the investment good sector. In this case, an increase in the saving rate produces a reallocation of economic activity toward the investment good sector; the aggregate profit share rises and its positive effect on investment may offset the reduction in average capacity utilization if investment is relatively more sensitive to profitability than to the level of activity.
- Bhaduri– Marglin investment function
- paradox of thrift
- two- sector growth model