DOES AGGREGATE PROFITABILITY REALLY MATTER

The impact of profitability on capital accumulation, neglected in conv entional accounts, is confirmed by a cross-sectional analysis of the p ost-war experience of manufacturing in OECD economies which is consist ent with a body of time-series and firm-level studies. The effect of c apital accumulation on growth is reviewed, suggesting a somewhat stron ger impact than growth accounting assumed. Profitability recovered in most, but not all, OECD economies in the 1980s and the recovery was st rongest where unemployment rose most and where labour cost competitive ness improved. The response of manufacturing investment was very patch y, however, and a number of influences which may have weakened the lin k to achieved profitability are discussed.