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Heterogeneous Mark-ups, Demand Composition, and the Inequality-Growth Relation

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  • Foellmi, Reto

    (University of Zurich)

  • Josef Zweim¸ller

Abstract

We explore the relationship between inequality and demand structure in an endogenous growth model where consumers expand consumption along a hierarchy of needs. This enables us to study the impact of inequality on demand for innovative products, on their prices, and hence on research incentives. As a result, changes in inequality affect the aggregate price structure and there may be market exclusion of the poor. With exclusion, higher inequality tends to increase growth because the profit share increases. However, higher inequality due to a bigger group of poor people may reduce growth. Instead, if the innovators always sell to all, inequality has an unambiguously negative impact on growth.

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Bibliographic Info

Paper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2002 with number 76.

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Date of creation: 29 Aug 2002
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Handle: RePEc:ecj:ac2002:76

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  1. Falkinger, Josef, 1994. "An Engelian model of growth and innovation with hierarchic consumer demand and unequal incomes," Ricerche Economiche, Elsevier, vol. 48(2), pages 123-139, June.
  2. Galor, Oded & Zeira, Joseph, 1988. "Income Distribution and Macroeconomics," MPRA Paper 51644, University Library of Munich, Germany, revised 01 Sep 1989.
  3. Giuseppe Bertola, 1991. "Factor Shares and Savings in Endogenous Growth," NBER Working Papers 3851, National Bureau of Economic Research, Inc.
  4. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-98, April.
  5. 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.
  6. Clarke, George R. G., 1992. "More evidence on income distribution and growth," Policy Research Working Paper Series 1064, The World Bank.
  7. Chou, Chien-Fu & Talmain, Gabriel, 1996. " Redistribution and Growth: Pareto Improvements," Journal of Economic Growth, Springer, vol. 1(4), pages 505-23, December.
  8. repec:ubc:bricol:96-03 is not listed on IDEAS
  9. Bourguignon, Francois, 1990. "Growth and Inequality in the Dual Model of Development: The Role of Demand Factors," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 215-28, April.
  10. Zweimueller, Josef & Brunner, Johann K., 1996. "Heterogeneous Consumers, Vertical Product Differentiation and the Rate of Innovation," Economics Series 32, Institute for Advanced Studies.
  11. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762.
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Cited by:
  1. Ling Shen, 2004. "Education, Income Distribution and Innovation," Bonn Econ Discussion Papers bgse11_2004, University of Bonn, Germany.
  2. Saint-Paul, Gilles, 2002. "Are Intellectual Property Rights Unfair?," IDEI Working Papers 151, Institut d'Économie Industrielle (IDEI), Toulouse.
  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. Christophe Ehrhart, 2009. "The effects of inequality on growth: a survey of the theoretical and empirical literature," Working Papers 107, ECINEQ, Society for the Study of Economic Inequality.
  5. Reto Foellmi & Josef Zweimüller, . "Income Distribution and Demand-induced Innovations," IEW - Working Papers 212, Institute for Empirical Research in Economics - University of Zurich.

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