erc/metu
INTERNATIONAL CONFERENCE IN ECONOMICS  IV
September 13-16, 2000, Ankara

Do Low Wages Stimulate Investments? An Analysis of the Relationship Between Wages and Investments in Turkish Private Manufacturing Industry

Nurhan Yentürk (Istanbul Technical University)
Özlem Onaran (Istanbul Technical University)

Abstract  

The aim of this study is to determine which of the profit-led or wage-led regimes are effective in the Turkish private manufacturing industry on the basis of the theoretical framework outlined by Bhaduri and Marglin (1990). A one-way fixed effects linear panel data model is estimated in order to analyze the impact of the changes in the profit share and the rate of capacity utilization on investments based on the industry level data for the 26 sub-sectors of manufacturing industry for the period of 1973-95. According to the estimation results, the response of investment to the changes in capacity utilization is much stronger than its response to the profit share. An overall decline in consumption demand as a result of a decline in wages undermines part of the positive response of investment to an increase in the share of profits, even for the export-oriented sectors. The results give evidence about the existence of a stagnationist pattern of accumulation and a wage-led growth regime in Turkish private manufacturing industry, and point out at the importance of the problems created by reliance on wage repression as a policy tool for structural adjustment.

Economic Research Center
Middle East Technical University
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