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Policy-Induced Changes in Income Distribution and Profit-Led Growth in A Developing Economy

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  • Mitra Thakur, Gogol

Abstract

In a demand-side growth model we show that a developing economy may experience a steady positive equilibrium growth rate of investment and profit as long as– investment in the economy is responsive to the aspirations of the richer section of the population to match the consumption level of the developed world and imitation of foreign production technology is not very expensive. A worsening of income distribution is not required to sustain this kind of growth process but a sufficiently unequal initial distribution of income is enough to propel it. We also show that the technologically dynamic sector producing for the rich is incapable in generating much employment. If the process is accompanied by no change in the distribution of income then the employment share of the the technologically stagnant sector producing for the poor increases at the cost of declining growth rate of real wage. In case the growth process is accompanied by an exogenous change in the distribution of income induced by shifts in economic policy regime then the positive and stable equilibrium growth rate of investment is associated with an increasing growth rate of output though more is gained in terms of increase in output growth when income distribution improves rather than worsens. On the other hand, growth rate of employment for the entire economy might decline.

Suggested Citation

  • Mitra Thakur, Gogol, 2013. "Policy-Induced Changes in Income Distribution and Profit-Led Growth in A Developing Economy," MPRA Paper 57779, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:57779
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    References listed on IDEAS

    as
    1. Mark Setterfield (ed.), 2002. "The Economics of Demand-Led Growth," Books, Edward Elgar Publishing, number 1864, June.
    2. Amit Bhaduri, 2006. "Endogenous economic growth: a new approach," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 30(1), pages 69-83, January.
    3. Bhaduri, Amit & Marglin, Stephen, 1990. "Unemployment and the Real Wage: The Economic Basis for Contesting Political Ideologies," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 14(4), pages 375-393, December.
    4. Dutt, Amitava Krishna, 1984. "Stagnation, Income Distribution and Monopoly Power," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 8(1), pages 25-40, March.
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    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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