Abstract:The 1980s saw the publication of several very influential works within the post keynesian tradition on growth and distribution. With Kaleckian mark-up pricing, and a flexible rate of capacity utilization in the investment function, these models indicated that wages and growth are negatively correlated. In this article I extend the literature within this tradition, and look into the feasibility of wage-led growth: it is shown that, in small economies, international competitiveness is a more relevant determinant of effective demand and growth. The paper also develops a dynamic system that generates a negative association between outward orientation policies and income distribution. But it is shown that this pattern may be broken with an institutional framework that encourages productivity growth when international competitiveness declines. The article concludes by arguing that government intervention is necessary to create a more favorable interaction between economic openess and income distribution. Finally, the model is able to generate endogenous growth.