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Does imperfect competition foster capital accumulation in a developing economy?

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  • Belan, Pascal
  • Michel, Philippe
  • Wigniolle, Bertrand

Abstract

We analyze the relationship between imperfect competition and capital accumulation in a dual economy, with traditional and modern sectors and two types of agents (workers and capitalists). Workers allocate their time endowment between the two sectors. Capitalistsaccumulate wealth in the modern sector. The economy is open to capital flows, but capitalists face borrowing constraints. Non-competitive behavior of capitalists results in a rent which is extracted from the workers and lowers employment in the modern sector. In the longrun,if capitalists are unconstrained, imperfect competition is beneficial for capital accumulation and growth, while it is detrimental in the converse case. Moreover, not-binding borrowing constraints lead to higher employment and wages. This can motivate the introduction of a subsidy on bequests which allows the economy to reach theunconstrained regime, and is welfare-enhancing for workers.
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Suggested Citation

  • Belan, Pascal & Michel, Philippe & Wigniolle, Bertrand, 2005. "Does imperfect competition foster capital accumulation in a developing economy?," Research in Economics, Elsevier, vol. 59(2), pages 189-208, June.
    • Handle: RePEc:eee:reecon:v:59:y:2005:i:2:p:189-208
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    Cited by:

    1. Biancamaria d'Onofrio & Bertrand Wigniolle, 2006. "Imperfect competition, technical progress and capital accumulation," Post-Print halshs-00118568, HAL.
    2. Biancamaria D'Onofrio & Bertrand Wigniolle, 2010. "Imperfect competition, technical progress and capital accumulation," International Journal of Economic Theory, The International Society for Economic Theory, vol. 6(4), pages 355-366, December.

    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers

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