In this paper, the researcher examines the relation between investment and exports through a Kaleckian model and highlights the possibility of export-induced growth process, despite deterioration in trade balance.
The stimulating role of exports is analysed through what is termed as a structurally-biased investment function where domestic demand and exports have different effects on investment rate. There are at least two central features of this investment function.
Firstly, exports stimulate growth through the investment channel independent of the direction of change in trade balance. Secondly, in contrast to the Bhaduri-Marglin type investment functions, the sign of profit share coefficient in investment function becomes ambiguous.
The structurally-biased investment function is tested and found to be valid for the registered manufacturing sector in India by conducting a panel-data exercise. The coefficient for profit share is found to be statistically insignificant after controlling for the effect of exogenous changes in exports.