Kaleckis investment-growth nexus is defined as the inducement to invest and is determined by the gap between the prospective rate of profit and the rate of interest. Risks rise with a closing gap between the initial interest rate and the expected profit rate. The growth rate of capital accumulation is dependent on profitability, which is, in turn, dependent on economic growth. If it were for the interest rate to suddenly fall, it follows that the risks would
be lower, the capital output ratio higher, and the growth rate would rise albeit at a decreasing rate because of diminishing returns.[1]
In a developing formation that holds the potential to collapse as a state, even if it were for the gap between the interest rate and expected profit to be high, investment may still prove to be sluggish because the rate at which risks increase over time is not only comparatively quite high but, it is also one in which the risk function is not continuous, meaning risk is Boolean taking the values, zero or one. The implication is in this case for investment to go in and out quickly or to use quickly depreciating capital. It will not be a case where if the cycle contracts businesses downsize and many firms will still survive. This will be a case in which all
businesses perish. There are no guarantees on the future and in as much as the risk is discontinuous so is the inducement to invest.
Here not only the probability values of future returns change under different states of nature, but the context for decision making. That is to say, it is not a question of change of degree or magnitude but more so a change of behavioural context because firms will only get involved because of necessity and choice. This leaves two types of capital that will invest in the national economy out of necessity, state capital and
national private capital fearing confiscation abroad. Under these circumstances, the implications are for the capital output ratio to remain low and for the growth rate to exhibit a high volatility. A matter typpical of potential failed states, e.g. Somalia, Iraq, Afghanistan, etc..
[1] This is Kaldors interpretation of Kalecki. See Targetti, F. and Thirwall, A.P.1989, The Essesntial Kaldor.
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