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Functional Income Distribution and Economic Growth in Finland

Student: Tatyana Fedoseeva

Supervisor: Ivan V. Rozmainsky

Faculty: St.Petersburg School of Economics and Management

Educational Programme: Economics (Bachelor)

Year of Graduation: 2021

The aim of the study is to determine the effect of functional income distribution on economic growth in Finland in 1975-2020. Bhaduri-Marglin model is used to estimate the effect of profit share increase on components of aggregate demand, and, therefore, on output. Experience of Finland is relevant for the research due to its successful economic performance and different from the widespread opinion about positive effect of wage restraint policy, and these consepts are implemented in economic policy. Autoregressive Distributed Lag (ARDL) model proposed by Pesaran et al. (2001) was applied to estimate components of aggregate demand. Results indicate wage-led growth regime for Finland what supports further implementation of wage policies. Positive effect of wage share increase on consumption overweighs negative effects on investments and net export. Example of Finland represents successfull implementation of pro-labor policy for wage-led country what is also adviced to other wage-led countries.

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