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Does imperfect competition foster capital accumulation in a developing economy

  • Pascal Belan

    ()

    (LEN and EUREQua)

  • Philippe Michel

    (GREQAM and EUREQua)

  • Bertrand Wigniolle

    ()

    (EUREQua)

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. Capitalists accumulate 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 long-run, 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 that allows the economy to reach the unconstrained regime, and is welfare-enhancing for workers.

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File URL: ftp://mse.univ-paris1.fr/pub/mse/cahiers2005/V05026.pdf
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Paper provided by Université Panthéon-Sorbonne (Paris 1) in its series Cahiers de la Maison des Sciences Economiques with number v05026.

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Length: 27 pages
Date of creation: Mar 2005
Date of revision:
Handle: RePEc:mse:wpsorb:v05026
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  15. Pascal Belan & Philippe Michel & Bertrand Wigniolle, 2007. "Capital Accumulation, Welfare, and the Emergence of Pension-Fund Activism," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 63(1), pages 54-82, March.
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