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Wealth inequality, entrepreneurship and industrialization

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  • Sahana Roy Chowdhury

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Abstract

The paper shows that in a two-good economy with a basic and a luxury good sector inequality is indeed a hindrance to provide sufficient incentive for entrepreneurship to low-wealth economic agents. In contrast to the literature it uses both demand and supply-side explanations for the analysis. An entrepreneurial subsidy policy to encourage entrepreneurship in autarky financed by a lump sum tax on the rich is not very effective in unequal economies since it hardly impacts the welfare. When trade is opened up in the luxury good sector of such an economy the sector might cease to exist. In such a scenario, the rich people being the sole consumers would reap the entire benefits of globalization via low price of the imported luxury good. The paper highlights that the crucial question is: ‘how to globalize’ rather than ‘whether to globalize’ and suggests policy measures to make globalization inclusive. Copyright Springer-Verlag 2013

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File URL: http://hdl.handle.net/10.1007/s00712-012-0268-6
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Bibliographic Info

Article provided by Springer in its journal Journal of Economics.

Volume (Year): 108 (2013)
Issue (Month): 1 (January)
Pages: 81-102

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Handle: RePEc:kap:jeczfn:v:108:y:2013:i:1:p:81-102

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Web page: http://www.springerlink.com/link.asp?id=108909

Related research

Keywords: Inequality; Entrepreneurship; Industrialization; Trade; Welfare; D31; D60; D63; H30; J24;

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  1. Grossman, Gene M, 1984. "International Trade, Foreign Investment, and the Formation of the Entrepreneurial Class," American Economic Review, American Economic Association, vol. 74(4), pages 605-14, September.
  2. Maik Heinemann & Christiane Clemens, 2005. "On the Effects of Redistribution on Growth and Entrepreneurial Risk-Taking," Computing in Economics and Finance 2005 275, Society for Computational Economics.
  3. Kiminori Matsuyama, 2000. "The Rise of Mass Consumption Societies," STICERD - Development Economics Papers - From 2008 this series has been superseded by Economic Organisation and Public Policy Discussion Papers 23, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  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. Barro, Robert J, 2000. " Inequality and Growth in a Panel of Countries," Journal of Economic Growth, Springer, vol. 5(1), pages 5-32, March.
  6. Paternostro, Stefano, 1997. "The poverty trap: The dual externality model and its policy implications," World Development, Elsevier, vol. 25(12), pages 2071-2081, December.
  7. S.M. Shafaeddin, 2005. "Trade Liberalization And Economic Reform In Developing Countries: Structural Change Or De-Industrialization?," UNCTAD Discussion Papers 179, United Nations Conference on Trade and Development.
  8. Kiminori Matsuyama, 1991. "Agricultural Productivity, Comparative Advantage and Economic Growth," NBER Working Papers 3606, National Bureau of Economic Research, Inc.
  9. Cesaire Meh, 2005. "Entrepreneurship, Wealth Inequality, and Taxation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(3), pages 688-719, July.
  10. repec:fth:stanho:e-92-3 is not listed on IDEAS
  11. Soon Ryoo, 2011. "Banks with market power, sectoral structure and the big push," Journal of Economics, Springer, vol. 103(1), pages 1-38, May.
  12. Galor, Oded & Zeira, Joseph, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Wiley Blackwell, vol. 60(1), pages 35-52, January.
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