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Income Distribution, Learning‐by‐Doing, and Comparative Advantage

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  • Anandi Mani
  • Jinyoung Hwang

Abstract

The paper examines the impact of the income distribution in a less‐developed country (LDC) on its patterns of trade, through its influence on home market demand patterns. In a learning‐by‐doing model with nonhomothetic preferences, the authors show that import substitution under low inequality generates more focused learning and enhances trade potential more effectively. In addition, relative wages under trade are higher in a low‐inequality LDC. The model predicts that high‐inequality LDCs are more likely to remain exporters of unskilled/low‐skilled goods, whereas low‐inequality LDCs are more likely to mature into simple manufactures and beyond—a prediction that is consistent with world trade patterns of LDCs. The authors present descriptive and empirical evidence in support of this link between income inequality, domestic demand patterns, and dynamic comparative advantage.

Suggested Citation

  • Anandi Mani & Jinyoung Hwang, 2004. "Income Distribution, Learning‐by‐Doing, and Comparative Advantage," Review of Development Economics, Wiley Blackwell, vol. 8(3), pages 452-473, August.
  • Handle: RePEc:bla:rdevec:v:8:y:2004:i:3:p:452-473
    DOI: 10.1111/j.1467-9361.2004.00245.x
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    References listed on IDEAS

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    1. Alberto Alesina & Dani Rodrik, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(2), pages 465-490.
    2. Alwyn Young, 1991. "Learning by Doing and the Dynamic Effects of International Trade," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(2), pages 369-405.
    3. Nancy L. Stokey, 1991. "The Volume and Composition of Trade Between Rich and Poor Countries," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(1), pages 63-80.
    4. Alwyn Young, 1991. "Learning by Doing and the Dynamic Effects of International Trade," NBER Working Papers 3577, National Bureau of Economic Research, Inc.
    5. S. Clemhout & H. Y. Wan, 1970. "Learning-by-Doing and Infant Industry Protection," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 37(1), pages 33-56.
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