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Innovation And Growth With Rich And Poor Consumers

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  • Josef Zweimüller
  • Johann K. Brunner

Abstract

This work studies the impact of income inequality on the level of innovative activities in a model where innovations result in quality improvements. In contrast to the standard model of innovations and growth, the equilibrium outcome may be characterized by a situation where not only the quality leader but also producers of worse qualities are on the market. In that case the quality leader sells to the rich, whereas the producer of the second-best quality sells to the poor. In general, we find that a more equal distribution of income is favourable for innovation incentives. This is consistent with empirical evidence suggesting that countries with a more equal distribution of income have grown faster. Copyright Blackwell Publishing Ltd 2005.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Metroeconomica.

Volume (Year): 56 (2005)
Issue (Month): 2 (05)
Pages: 233-262

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Handle: RePEc:bla:metroe:v:56:y:2005:i:2:p:233-262

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  1. Saint-Paul, Gilles & Verdier, Thierry, 1992. "Education, Democracy and Growth," CEPR Discussion Papers 613, C.E.P.R. Discussion Papers.
  2. GABSZEWICZ, Jean J. & THISSE, Jacques-François, . "Entry (and exit) in a differentiated industry," CORE Discussion Papers RP -400, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Galor, Oded & Zeira, Joseph, 1988. "Income Distribution and Macroeconomics," MPRA Paper 51644, University Library of Munich, Germany, revised 01 Sep 1989.
  4. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1989. "Income Distribution, Market Size, and Industrialization," The Quarterly Journal of Economics, MIT Press, vol. 104(3), pages 537-64, August.
  5. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June.
  6. Ted O'Donoghue, Suzanne Scotchmer, and Jacques-Fran�ois Thisse., 1995. "Patent Breadth, Patent Life and the Pace of Technological Improvement," Economics Working Papers 95-242, University of California at Berkeley.
  7. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June.
  8. Perotti, Roberto, 1993. "Political Equilibrium, Income Distribution, and Growth," Review of Economic Studies, Wiley Blackwell, vol. 60(4), pages 755-76, October.
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Citations

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Cited by:
  1. Josef Zweimueller, . "Inequality, Redistribution, and Economic Growth," IEW - Working Papers 031, Institute for Empirical Research in Economics - University of Zurich.
  2. Josef Zweimueller, . "Schumpeterian Entrepreneurs Meet Engel's Law: The Impact of Inequality on Innovation-Driven Growth," IEW - Working Papers 009, Institute for Empirical Research in Economics - University of Zurich.
  3. Reto Foellmi und Josef Zweimüller, . "Inequality and Economic Growth - European Versus U.S. Experiences," IEW - Working Papers 158, Institute for Empirical Research in Economics - University of Zurich.
  4. Shen, Ling, 2013. "How does wealth distribution affect firm's incentive to innovate better quality goods?," Economic Modelling, Elsevier, vol. 32(C), pages 516-523.
  5. Soma Roy, 2011. "Income Distribution, Spillover Effects And Choice Of Product Quality," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 36(2), pages 61-86, June.
  6. Reto Foellmi & Josef Zweimüller, . "Income Distribution and Demand-induced Innovations," IEW - Working Papers 212, Institute for Empirical Research in Economics - University of Zurich.
  7. Marasco, Antonio, 2002. "An endogenous growth model with quality ladders and consumers’ heterogeneity," MPRA Paper 5389, University Library of Munich, Germany, revised Jan 2007.
  8. Marasco, Antonio, 2005. "Testing Schumpeterian growth theory: the role of income inequality as a determinant of research and development expenditures (developed economies) and successful technology transfers (developing econo," MPRA Paper 4785, University Library of Munich, Germany.
  9. Vesna Stavrevska, 2011. "The efficiency wages perspective to wage rigidity in the open economy: a survey," International Journal of Manpower, Emerald Group Publishing, vol. 32(3), pages 273-299, July.
  10. Ling Shen, 2004. "Education, Income Distribution and Innovation," Bonn Econ Discussion Papers bgse11_2004, University of Bonn, Germany.

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