Secular decline in profit rates: time series analysis of a classical hypothesis

Recent global financial crisis and ongoing turbulence in the global economy revived interest in the classical hypothesis of declining profit rates and vanishing profit opportunities as one of the reasons of economic instabilities. This paper, while not joining theoretical debate on the driving facto...

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Bibliographic Details
Published in:The European journal of comparative economics : EJCE 2018-06, Vol.15 (1), p.83-118
Main Author: Trofimov, Ivan D
Format: Article
Language:English
Subjects:
Analysis
Capital productivity
Capitalism
classical political economy
Deterioration
Econometrics
Economic crisis
Economic growth
Economic models
Economic statistics
Economists
Forecasts and trends
Global economy
Hypotheses
Manufacturing
Political economy
Productivity
profit rates
Profitability
Profits
Stochastic models
Terms of trade
Time series
Time series analysis
trend estimation
Trends
unit root
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Summary:Recent global financial crisis and ongoing turbulence in the global economy revived interest in the classical hypothesis of declining profit rates and vanishing profit opportunities as one of the reasons of economic instabilities. This paper, while not joining theoretical debate on the driving factors of profit rates' decline, reconsiders empirically the hypothesis of the secular decline in economy-wide profit rates. A panel of unit root tests is used and deterministic and stochastic trend models (with or without structural breaks) are estimated. It is shown that instead of continuous downward trend, profit rates exhibit diverse dynamics--random walk, deterioration with breaks, reversals, or the absence of trend. Likewise, it is shown in an exploratory analysis that a variety of factors were determining profit rates, with capital productivity and competitive dynamics in the economy likely being the most salient.
ISSN:1824-2979
1824-2979
DOI:10.25428/1824-2979/201801-83-118