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The Great Divergence Revisited: Industrialization, Inequality and Political Conflict in the Unified Growth Model

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  • Dmitriy Veselov

    (National Research University Higher School of Economics)

  • Alexander Yarkin

    (National Research University Higher School of Economics)

Abstract

This paper studies the impact of inequality in capital and land distribution on the pace of industrialization, thereby explaining the role of wealth inequality in the Great Divergence phenomenon. We build a two-sector unified growth model, in which the outcome of public policy contest between the supporters and opponents of modern sector development determines the pace of industrialization. The distribution of wealth affects the incentives of agents to invest in political conflict, and hence influences the probability of pro-growth policies. We show that while higher inequality in land distribution hampers modern sector development, higher inequality in capital within landless agents is growth enhancing. The strength of the latter effect increases with the amount of accumulated capital. The model also captures the hump-shaped path of conflict intensity observed throughout the industrialization phase. We present several historical narratives that support these results

Suggested Citation

  • Dmitriy Veselov & Alexander Yarkin, 2015. "The Great Divergence Revisited: Industrialization, Inequality and Political Conflict in the Unified Growth Model," HSE Working papers WP BRP 118/EC/2015, National Research University Higher School of Economics.
    • Handle: RePEc:hig:wpaper:118/ec/2015
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    Cited by:

    1. Veselov, D. & Yarkin, A., 2016. "Wealth Distribution and Political Conflict in the Model of Transition from Stagnation to Growth," Journal of the New Economic Association, New Economic Association, vol. 32(4), pages 30-60.

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    More about this item

    Keywords

    unified growth; public policy contest; endogenous institutions; industrialization; inequality;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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