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Does imperfect competition foster capital accumulation in a developing economy?

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  • Belan, Pascal
  • Michel, Philippe
  • Wigniolle, Bertrand

Abstract

We analyze the relationship between imperfect competition and capital accumulation in a dual economy, with traditional and modern sectors and two types of agents (workers and capitalists). Workers allocate their time endowment between the two sectors. Capitalists accumulate wealth in the modern sector. The economy is open to capital flows, but capitalists face borrowing constraints. Non-competitive behavior of capitalists results in a rent, which is extracted from the workers and lowers employment in the modern sector. In the long-run, if capitalists are unconstrained, imperfect competition is beneficial for capital accumulation and growth, while it is detrimental in the converse case. Moreover, not-binding borrowing constraints lead to higher employment and wages. This can motivate the introduction of a subsidy on bequests that allows the economy to reach the unconstrained regime, and is welfare-enhancing for workers.

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Bibliographic Info

Article provided by Elsevier in its journal Research in Economics.

Volume (Year): 59 (2005)
Issue (Month): 2 (June)
Pages: 189-208

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Handle: RePEc:eee:reecon:v:59:y:2005:i:2:p:189-208

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Web page: http://www.elsevier.com/locate/inca/622941

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Cited by:
  1. repec:hal:journl:halshs-00118568 is not listed on IDEAS
  2. Biancamaria D'Onofrio & Bertrand Wigniolle, 2010. "Imperfect competition, technical progress and capital accumulation," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00185321, HAL.

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