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Does imperfect competition foster capital accumulation in a developing economy?

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

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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Article provided by Elsevier in its journal Research in Economics.

Volume (Year): 59 (2005)
Issue (Month): 2 (June)
Pages: 189-208

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Handle: RePEc:eee:reecon:v:59:y:2005:i:2:p:189-208
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622941

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  3. Stiglitz, Joseph E, 1969. "Distribution of Income and Wealth among Individuals," Econometrica, Econometric Society, vol. 37(3), pages 382-97, July.
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