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Wealth inequality, entrepreneurship and industrialization

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  • Sahana Roy Chowdhury

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Abstract

The paper shows that in a two-good economy with a basic and a luxury good sector inequality is indeed a hindrance to provide sufficient incentive for entrepreneurship to low-wealth economic agents. In contrast to the literature it uses both demand and supply-side explanations for the analysis. An entrepreneurial subsidy policy to encourage entrepreneurship in autarky financed by a lump sum tax on the rich is not very effective in unequal economies since it hardly impacts the welfare. When trade is opened up in the luxury good sector of such an economy the sector might cease to exist. In such a scenario, the rich people being the sole consumers would reap the entire benefits of globalization via low price of the imported luxury good. The paper highlights that the crucial question is: ‘how to globalize’ rather than ‘whether to globalize’ and suggests policy measures to make globalization inclusive. Copyright Springer-Verlag 2013

Suggested Citation

  • Sahana Roy Chowdhury, 2013. "Wealth inequality, entrepreneurship and industrialization," Journal of Economics, Springer, vol. 108(1), pages 81-102, January.
  • Handle: RePEc:kap:jeczfn:v:108:y:2013:i:1:p:81-102 DOI: 10.1007/s00712-012-0268-6
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    References listed on IDEAS

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    1. Kiminori Matsuyama, 2002. "The Rise of Mass Consumption Societies," Journal of Political Economy, University of Chicago Press, vol. 110(5), pages 1035-1070, October.
    2. repec:hoo:wpaper:e-92-3 is not listed on IDEAS
    3. Paternostro, Stefano, 1997. "The poverty trap: The dual externality model and its policy implications," World Development, Elsevier, vol. 25(12), pages 2071-2081, December.
    4. Cesaire Meh, 2005. "Entrepreneurship, Wealth Inequality, and Taxation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(3), pages 688-719, July.
    5. Matsuyama, Kiminori, 1992. "Agricultural productivity, comparative advantage, and economic growth," Journal of Economic Theory, Elsevier, vol. 58(2), pages 317-334, December.
    6. Soon Ryoo, 2011. "Banks with market power, sectoral structure and the big push," Journal of Economics, Springer, vol. 103(1), pages 1-38, May.
    7. Oded Galor & Joseph Zeira, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Oxford University Press, vol. 60(1), pages 35-52.
    8. Christiane Clemens & Maik Heinemann, 2006. "On the Effects of Redistribution on Growth and Entrepreneurial Risk-taking," Journal of Economics, Springer, vol. 88(2), pages 131-158, August.
    9. Grossman, Gene M, 1984. "International Trade, Foreign Investment, and the Formation of the Entrepreneurial Class," American Economic Review, American Economic Association, pages 605-614.
    10. Kevin M. Murphy & Andrei Shleifer & Robert Vishny, 1989. "Income Distribution, Market Size, and Industrialization," The Quarterly Journal of Economics, Oxford University Press, vol. 104(3), pages 537-564.
    11. S.M. Shafaeddin, 2005. "Trade Liberalization And Economic Reform In Developing Countries: Structural Change Or De-Industrialization?," UNCTAD Discussion Papers 179, United Nations Conference on Trade and Development.
    12. Grossman, Gene M, 1984. "International Trade, Foreign Investment, and the Formation of the Entrepreneurial Class," American Economic Review, American Economic Association, pages 605-614.
    13. Barro, Robert J, 2000. "Inequality and Growth in a Panel of Countries," Journal of Economic Growth, Springer, vol. 5(1), pages 5-32, March.
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    More about this item

    Keywords

    Inequality; Entrepreneurship; Industrialization; Trade; Welfare; D31; D60; D63; H30; J24;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D60 - Microeconomics - - Welfare Economics - - - General
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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