DP1880 Schumpeterian Entrepreneurs Meet Engel's Law: The Impact of Inequality on Innovation-Driven Growth
|Publication Date:||May 1998|
|Keyword(s):||Growth, hierarchic demand, Inequality, Innovation|
|JEL(s):||H23, O14, O15, O31|
|Programme Areas:||International Macroeconomics, Human Resources|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=1880|
This paper analyses the impact of inequality on growth when technical progress is driven by innovations. It is assumed that consumers have hierarchic preferences. As a result inequality affects demand and therefore the incentive to innovate. Whether more inequality is harmful or beneficial for growth depends on the initial distribution. Complementarities between a technical and a pecuniary externality resulting from the innovation process may generate multiple equilibria. Redistribution may push an economy trapped in underdevelopment to a high-growth regime.