Empirical evidence of Goodwin’s growth cycle in the Indian organised manufacturing sector

Abstract

Purpose – The aim of the paper is to investigate Goodwin’s growth cycle in the Indian organised manufacturing industries. Design/methodology/approach – The methodology is based on bi-variate differential equation, econometrics model like log-linear regression and Autoregressive Distributed Lag model. An empirical investigation is conducted on data from the Annual Survey of Industries from 1980 to 2018 time period. Findings – The results indicate that though the original Goodwin model estimates deviated from data estimates, its modified (neo-Goodwin) model are found to be equivalent to the data estimates. Moreover, in contrast to the original model, the capital accumulation rate (investment to profit ratio) is not assumed to be unitary in the modified Goodwin model. Furthermore, the labour market-led and cost effect conditions of the Goodwin cycle are empirically verified by investigating the interdependency between employment rate and wage share. Lastly, the short- and long-run Goodwin cycles are observed to be moving in anti-clockwise direction in the employment rate and wage share bi-dimensional plane, thus confirming the existence of profit-led distribution where wage share continuously reducing with high employment. Research limitations/implications – This study opens the discussion on application of capitalistic model in the emerging economy and also suggests to incorporate some theoretical models like Kaldorian, Keynesian, Kaleckian or Schumpetrian into the Goodwin cycle. Originality/value – This is the first paper which empirically examines the capitalistic nature of Indian organised manufacturing industries through the lens of Goodwin growth cycle and then extend it to the Neo-Goodwin model by relaxing one of the unrealistic assumption regarding unitary investment to profit ratio.

Keywords

• Goodwin model
• Growth cycle
• Wage share
• Employment rate