Functional Distribution, Land Ownership and Industrial Takeoff

This paper investigates how the distribution of land property rights affects industrial take-off and aggregate income through the demand side. We study a stylized two sectors economy where the manufacturing sector is assumed to be constituted by a continuum of small markets producing distinct commodities. Following Murphy et al. [24] we model industrialization as the introduction of an increasing returns technology in place of a constant returns one. However, we depart from their framework by assuming income to be distributed according to functional groups’ membership (landowners, capitalists, workers). We carry out an equilibrium analysis for different levels of land ownership concentration proving that, under the specified conditions, there is a non-monotonic relation between the distribution of land property rights and both industrialization and income. We clarify that non-monotonicity arises because of the way land ownership concentration affects the level and the distribution of profits among capitalists. Our results suggest that i) both a too concentrated and a too diffused distribution of land property rights can be detrimental to industrialization, ii) landownership affects the economic performance of an industrializing country by determining industrial profits and iii) in terms of optimal land distribution there may be a tradeoff between income and industrialization.