Financial Instability in Latin America:
A Minskian-Kaleckian Perspective
Tsuyoshi Yasuhara

Identifying the factors that determine fixed investment is essential to understanding economic growth. Most research on Latin American economics analyzes how the low rate of domestic savings has obligated the region to depend on external savings to finance investment, which is why foreign vulnerability has been an obstacle to growth.4

In the Kaleckian model, investment and savings are explained in different contexts. The role of investment includes the explanatory variables of the profit rate and the capacity utilization rate, and the savings rate is determined by the propensity of businessmen and income distribution. This school of thought says that a low propensity to save increases the rate of investment and capital accumulation. Post-Keynesian theory teaches that investment produces a flow of additional savings that finances itself, and as such, the ex ante level of savings does not restrict the investment rate. In this theoretical framework, the main cause of growth vulnerability is the oligopolized regime of the financial sector and the existence of related credits.

Investment and the Capacity Utilization Rate in the Kaleckian Model

The Kaleckian model is built on three functions: the function of fixed investment I , the function of savings S, and the capacity utilization rate u, defined as:, where Y represents national income and K is the formation of fixed capital.5 Growth in the short and medium term is based on the additional utilization of resources and capacities that have been used at a lower level than their maximum utilization. In general, the function of fixed investment is illustrated in the following manner, with the parameters of: g1 - g46

where rsf corresponds to the expected profit rate for investors (shareholders), u is the capacity utilization rate, registers Tobin’s Q, where W is the level of capitalization in the market, and D is external debt. In the securitization phase, the effect of Tobin’s Q on investment is not identified. If businessmen intervene in the stock market and buy and sell stocks from their own entities for the business fund, the rise in Tobin’s W does not result in additional fixed investment. So, ignoring Tobin’s W, we present the accumulation function in the following manner:


In (1), p* is the expected profit rate. The traditional Kaleckian model assumes an adjustment to the capacity utilization rate in the medium and long term, until reaching the "normal" rate . Additional investment produces increased income, which is divided into salary income for employees and business profits. Given the assumption that salary income does not generate savings, income distribution formulates the savings function. It depends on the adjustment parameter of u and the income distribution, and guarantees a stable or unstable regime in the balance between investment and savings.

The purpose of the neo-Kaleckian theory is to illustrate the capacity utilization rate as the endogenous variable in the model. Lavoie (1992) demonstrates the capacity utilization rate function built by the explanatory variables of real salary and business earnings:7

4eclac, An Economic Study of Latin America and the Caribbean 2007, p. 41.

5 Lavoie, 1992, p. 301 and Hein, Lavoie and Treck, 2011.

6 Hein and Treck, 2010.

7 Lavoie, 1992, p. 301.