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Income Distribution and the Demand Constraint

  • Mani, Anandi
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    This paper argues that the interaction between inequality and the demand patterns for goods is a potential source of persistent inequality. Income distribution, in the presence of non-homothetic preferences, affects the demand for goods and, due to differences in factor intensities across sectors, it alters the return to factors of production and the initial distribution of income. Low inequality leads to high demand for medium skilled intensive goods, providing a bridge over which low skill dynasties may transition to the high-skilled sector in the long run. Under high inequality however, the initial lack of demand for medium skilled labor breaches this bridge from poverty to prosperity and inequality persists. Copyright 2001 by Kluwer Academic Publishers

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    Article provided by Springer in its journal Journal of Economic Growth.

    Volume (Year): 6 (2001)
    Issue (Month): 2 (June)
    Pages: 107-33

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    Handle: RePEc:kap:jecgro:v:6:y:2001:i:2:p:107-33
    Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=102931

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    1. Roland Benabou, 1996. "Inequality and Growth," NBER Working Papers 5658, National Bureau of Economic Research, Inc.
    2. Galor, Oded & Zeira, Joseph, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Wiley Blackwell, vol. 60(1), pages 35-52, January.
    3. 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.
    4. De Janvry, Alain & Sadoulet, Elisabeth, 1983. "Social articulation as a condition for equitable growth," Journal of Development Economics, Elsevier, vol. 13(3), pages 275-303, December.
    5. Oded Galor & Omer Moav, 2004. "From Physical to Human Capital Accumulation: Inequality and the Process of Development," Review of Economic Studies, Oxford University Press, vol. 71(4), pages 1001-1026.
    6. 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.
    7. Copeland, Brian R. & Kotwal, Ashok, 1996. "Product quality and the theory of comparative advantage," European Economic Review, Elsevier, vol. 40(9), pages 1745-1760, December.
    8. Teitel, Simon, 1976. "Labor homogeneity, skill intensity and factor reversals - an international comparison," Journal of Development Economics, Elsevier, vol. 3(4), pages 355-366, December.
    9. repec:ubc:bricol:96-03 is not listed on IDEAS
    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.
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