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Functional Distribution, Land Ownership and Industrial Takeoff: The Role of Effective Demand

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  • E. Bilancini
  • Simone D’Alessandro

Abstract

This paper analyses how the distribution of land property rights affects industrial takeoff and aggregate income through the demand side. We study a stylized economy composed of two sectors, agriculture and manufacturing. The former produces a single subsistence good while the latter is constituted of a continuum of markets producing distinct commodities. Following Murphy et al. [20] we model industrialization as the introduction of an increasing returns technology in place of a constant returns one. However, we depart from their framework by assuming income to be distributed according to functional groups membership (landowners, capitalists, workers). We carry out an equilibrium analysis for different levels of land ownership concentration proving that, under the specified conditions, there is a non-monotonic relation between the distribution of land property rights and both industrialization and income. We clarify that non-monotonicity arises because of the way land ownership concentration affects the level and the distribution of profits among capitalists which, in turn, shape their demand. Our results suggest that i) both a too concentrated and a too diffused distribution of land property rights can be detrimental to industrialization, ii) land ownership affects the economic performance of an industrializing country by determining the demand of manufactures of both landowners and capitalists, iii) in terms of optimal land distribution there may be a tradeoff between income and industrialization.

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File URL: http://www.degit.ifw-kiel.de/papers/degit_11/C011_051.pdf
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Bibliographic Info

Paper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c011_051.

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Length: 32 pages
Date of creation: Jun 2006
Date of revision:
Handle: RePEc:deg:conpap:c011_051

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  1. Jeon, Yoong-Deok & Kim, Young-Yong, 2000. "Land Reform, Income Redistribution, and Agricultural Production in Korea," Economic Development and Cultural Change, University of Chicago Press, vol. 48(2), pages 253-68, January.
  2. Kiminori Matsuyama, 1999. "The Rise of Mass Consumption Societies," Discussion Papers 1289, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. repec:bla:restud:v:72:y:2005:i:1:p:43-56 is not listed on IDEAS
  4. Zweimuller, Josef, 2000. " Schumpeterian Entrepreneurs Meet Engel's Law: The Impact of Inequality on Innovation-Driven Growth," Journal of Economic Growth, Springer, vol. 5(2), pages 185-206, June.
  5. Deininger, K & Squire, L, 1996. "Measuring Income Inequality : A New Data-Base," Papers 537, Harvard - Institute for International Development.
  6. Galor, Oded & Moav, Omer & Vollrath, Dietrich, 2003. "Land Inequality and the Origin of Divergence and Overtaking in the Growth Process: Theory and Evidence," CEPR Discussion Papers 3817, C.E.P.R. Discussion Papers.
  7. Kevin M. Murphy & Andrei Shleifer & Robert Vishny, 1988. "Income Distribution, Market Size, and Industrialization," NBER Working Papers 2709, National Bureau of Economic Research, Inc.
  8. Kevin M. Murphy & Andrei Shleifer & Robert W. Vishny, 1988. "Industrialization and the Big Push," NBER Working Papers 2708, National Bureau of Economic Research, Inc.
  9. Eswaran, Mukesh & Kotwal, Ashok, 1993. "A theory of real wage growth in LDCs," Journal of Development Economics, Elsevier, vol. 42(2), pages 243-269, December.
  10. Deininger, Klaus & Squire, Lyn, 1998. "New ways of looking at old issues: inequality and growth," Journal of Development Economics, Elsevier, vol. 57(2), pages 259-287.
  11. Mani, Anandi, 2001. " Income Distribution and the Demand Constraint," Journal of Economic Growth, Springer, vol. 6(2), pages 107-33, June.
  12. Baland, Jean-Marie & Ray, Debraj, 1991. "Why does asset inequality affect unemployment? A study of the demand composition problem," Journal of Development Economics, Elsevier, vol. 35(1), pages 69-92, January.
  13. Abhijit V. Banerjee & Paul J. Gertler & Maitreesh Ghatak, 2002. "Empowerment and Efficiency: Tenancy Reform in West Bengal," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 239-280, April.
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Cited by:
  1. Jeorge Álvarez & Ennio Bilancini & Simone D’Alessandro & Gabriel Porcile, 2010. "Agricultural Institutions, Industrialization and Growth: the Case of New Zealand and Uruguay in 1870-1940," Department of Economics 0635, University of Modena and Reggio E., Faculty of Economics "Marco Biagi".

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