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Income Distribution and the Demand Constraint

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  • Mani, Anandi

Abstract

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

Suggested Citation

  • Mani, Anandi, 2001. "Income Distribution and the Demand Constraint," Journal of Economic Growth, Springer, vol. 6(2), pages 107-133, June.
  • Handle: RePEc:kap:jecgro:v:6:y:2001:i:2:p:107-33
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    References listed on IDEAS

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    1. 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.
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    Cited by:

    1. Debraj Ray, 2006. "On the dynamics of inequality," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 29(2), pages 291-306, October.
    2. Marrero, Gustavo A. & Rodríguez, Juan G., 2013. "Inequality of opportunity and growth," Journal of Development Economics, Elsevier, vol. 104(C), pages 107-122.
    3. Matsuo, Miki & Tomoda, Yasunobu, 2012. "Human capital Kuznets curve with subsistence consumption level," Economics Letters, Elsevier, vol. 116(3), pages 392-395.
    4. Devashish Mitra & Vitor Trindade, 2005. "Inequality and trade," Canadian Journal of Economics, Canadian Economics Association, vol. 38(4), pages 1253-1271, November.
    5. Miquel Pellicer & Vimal Ranchhod & Mare Sarr & Eva Wegner, 2011. "Inequality Traps in South Africa: An overview and research agenda," SALDRU Working Papers 57, Southern Africa Labour and Development Research Unit, University of Cape Town.
    6. Vincenzo Lombardo, 2012. "Social inclusion and the emergence of development traps," Discussion Papers 13_2012, CRISEI, University of Naples "Parthenope", Italy.
    7. Joan Esteban & Debraj Ray, 2006. "Inequality, Lobbying, and Resource Allocation," American Economic Review, American Economic Association, vol. 96(1), pages 257-279, March.
    8. Bilancini Ennio & D'Alessandro Simone, 2008. "Functional Distribution, Land Ownership and Industrial Takeoff: The Role of Effective Demand," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 8(1), pages 1-36, August.
    9. Debraj Ray, 2010. "Uneven Growth: A Framework for Research in Development Economics," Journal of Economic Perspectives, American Economic Association, vol. 24(3), pages 45-60, Summer.
    10. repec:eac:articl:04/15 is not listed on IDEAS
    11. Alcalá, Francisco, 2009. "Time, Quality and Growth," UMUFAE Economics Working Papers 4811, DIGITUM. Universidad de Murcia.
    12. Clark Don P. & Highfill Jannett & de Oliveira Campino Jonas & Rehman Scheherazade S., 2011. "FDI, Technology Spillovers, Growth, and Income Inequality: A Selective Survey," Global Economy Journal, De Gruyter, vol. 11(2), pages 1-44, July.
    13. repec:spr:jknowl:v:8:y:2017:i:1:d:10.1007_s13132-016-0363-y is not listed on IDEAS
    14. Sirine Mnif, 2015. "Impact of Inequalities on Technological Changes: Case of the Developing Countries," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 5(3), pages 460-478, March.
    15. Banerji, Arup & Jain, Sanjay, 2007. "Quality dualism," Journal of Development Economics, Elsevier, vol. 84(1), pages 234-250, September.
    16. Marasco, Antonio, 2002. "An endogenous growth model with quality ladders and consumers’ heterogeneity," MPRA Paper 5389, University Library of Munich, Germany, revised Jan 2007.

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