Varieties of capitalism and growth regimes: the role of income distribution

Abstract

This article proposes a comparative political economy framework for analyzing the links between varieties of capitalism (VoC) and growth models, with a focus on the role of income distribution in the international trade imbalances leading up to the global financial crisis of 2008. For a panel of 18 countries over the period 1981–2007, we find that strongly rising top income shares contributed to debt-led growth and current account deficits in major liberal market economies (LMEs), whereas pronounced falls in the wage share contributed to export-led growth and current account surpluses in coordinated market economies (CMEs). We discuss how, against a global trend of liberalization and de-unionization, the institutional features originally thought to establish prosperous (and stable) VoC were linked to the emergence of distinct but similarly inequitable (and unstable) growth models in LMEs and CMEs.