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Abstract

We present a model that links the division of labor and economic growth with the division of wealth in society. When capital market imperfections restrict the access of poor households to capital, the division of wealth affects individual incentives to invest in specialization. In turn, the division of labor determines the dynamics of the wealth distribution. A highly concentrated distribution of wealth leads to a low degree of specialization, low productivity, and low wages. In that case workers are unable to accumulate enough wealth to invest in specialization. Hence, in a highly unequal society, there is a vicious cycle in which the degree of specialization, productivity and wages stay low, wealth and income inequality stays high and the economy stagnates. By contrast, greater equality increases investment in specialization and leads to a greater division of labor and higher long run development. Copyright 2002 by Kluwer Academic Publishers

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Bibliographic Info

Article provided by Springer in its journal Journal of Economic Growth.

Volume (Year): 7 (2002)
Issue (Month): 2 (June)
Pages: 117-36

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Handle: RePEc:kap:jecgro:v:7:y:2002:i:2:p:117-36

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Citations

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Cited by:

1. Fali Huang, 2012. "The Coevolution Of Economic And Political Development From Monarchy To Democracy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(4), pages 1341-1368, November.
   
   • Fali Huang, 2007. "The Coevolution of Economic and Political Development from Monarchy to Democracy," Working Papers 07-2007, Singapore Management University, School of Economics.
   • Fali Huang, 2007. "The Coevolution of Economic and Political Development from Monarchy to Democracy," Development Economics Working Papers 22448, East Asian Bureau of Economic Research.
2. Aiyar, Shekhar & Dalgaard, Carl-Johan & Moav, Omer, 2006. "Technological Progress and Regress in Pre-Industrial Times," CEPR Discussion Papers 5454, C.E.P.R. Discussion Papers.
   
   • Shekhar Aiyar & Carl-Johan Dalgaard & Omer Moav, 2008. "Technological progress and regress in pre-industrial times," Journal of Economic Growth, Springer, vol. 13(2), pages 125-144, June.
3. Grossmann, Volker, 2008. "Risky human capital investment, income distribution, and macroeconomic dynamics," Journal of Macroeconomics, Elsevier, vol. 30(1), pages 19-42, March.
   
   • Grossmann, Volker, 2003. "Risky Human Capital Investment, Income Distribution, and Macroeconomic Dynamics," IZA Discussion Papers 955, Institute for the Study of Labor (IZA).
   • Volker Grossmann, 2004. "Risky Human Capital Investment, Income Distribution, and Macroeconomic Dynamics," DEGIT Conference Papers c009_028, DEGIT, Dynamics, Economic Growth, and International Trade.
4. Oded Galor & Omer Moav, 2004. "From Physical to Human Capital Accumulation: Inequality and the Process of Development," Review of Economic Studies, Wiley Blackwell, vol. 71(4), pages 1001-1026, October.
   
   • Oded Galor & Omer Moav, 2004. "From Physical to Human Capital Accumulation: Inequality and the Process of Development," Review of Economic Studies, Oxford University Press, vol. 71(4), pages 1001-1026.
   • Oded Galor & Omer Moav, 2004. "From Physical to Human Capital Accumulation: Inequality and the Process of Development," GE, Growth, Math methods 0410005, EconWPA.
   • Galor, Oded & Moav, Omer, 1999. "From Physical to Human Capital Accumulation: Inequality in the Process of Development," CEPR Discussion Papers 2307, C.E.P.R. Discussion Papers.
   • Oded Galor & Omer Moav, 1999. "From Physical to Human Capital Accumulation: Inequality in the Process of Development," Working Papers 99-27, Brown University, Department of Economics.
5. Xavier Ragot, 2003. "Technical Change and the Dynamics of The Division of Labor," DELTA Working Papers 2003-09, DELTA (Ecole normale supérieure).
6. Oded Galor, 2009. "Inequality and Economic Development: An Overview," Working Papers 2009-3, Brown University, Department of Economics.
7. Stark, Oded, 2005. "Status Aspirations, Wealth Inequality, and Economic Growth," Economics Series 166, Institute for Advanced Studies.
   
   • Oded Stark, 2006. "Status Aspirations, Wealth Inequality, and Economic Growth," Review of Development Economics, Wiley Blackwell, vol. 10(1), pages 171-176, 02.
8. Ming Lu & Hong Gao, 2010. "When Globalization Meets Urbanization: Labor Market Reform, Income Inequality, and Economic Growth in the People’s Republic of China," Working Papers id:3095, eSocialSciences.
9. Raphael BAR-EL & Dafna SCHWARTZ, 2003. "Economic Growth, Inequality And Spatial Demographic Distribution: A Brazilian Case," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 18, pages 147-170.
10. WANG, Zuxiang & SMYTH, Russell & NG, Yew-Kwang, 2009. "A new ordered family of Lorenz curves with an application to measuring income inequality and poverty in rural China," China Economic Review, Elsevier, vol. 20(2), pages 218-235, June.
11. Wan, Guanghua & Lu, Ming & Chen, Zhao, 2006. "The inequality-growth nexus in the short and long run: Empirical evidence from China," Journal of Comparative Economics, Elsevier, vol. 34(4), pages 654-667, December.
    
    • Wan, Guanghua & Lu, Ming & Chen, Zhao, 2006. "The Inequality-Growth Nexus in the Short and Long Runs: Empirical Evidence from China," Working Papers RP2006/92, World Institute for Development Economic Research (UNU-WIDER).
12. Thomas Leoni & Wolfgang Pollan, 2003. "The Impact of Inequality on Economic Growth," WIFO Working Papers 211, WIFO.
13. Phillips, Kerk L., 2010. "A Dynamic Model of Specialization and Market Development as Engines of Economic Growth," MPRA Paper 23500, University Library of Munich, Germany.
14. Ayal Kimhi, 2004. "Growth, Inequality and Labor Markets in LDCs: A Survey," CESifo Working Paper Series 1281, CESifo Group Munich.

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