DP1880 Schumpeterian Entrepreneurs Meet Engel's Law: The Impact of Inequality on Innovation-Driven Growth
| Author(s): | Josef Zweimüller |
| 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.