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How does wealth distribution affect firm's incentive to innovate better quality goods?

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  • Shen, Ling

Abstract

The paper contributes to the literature relating to inequality and economic growth, in particular, we investigate the effects of wealth distribution on the kind of growth driven by innovation, i.e. Schumpeterian growth. Since two types of individuals are assumed, the poor and the rich, Gini-coefficient is treated in two variables, namely the relative wealth of the poor and the population share of the poor, each having a different effect on economic performance. Particularly in the separating equilibrium, an improvement in the relative wealth of the poor impedes economic growth, but a decline in the population share of the poor enhances economic growth. Furthermore, the current paper combines the Schumpeterian quality improvement model and the neoclassic production function. Thus, the impact of wealth inequality on economic growth is through the supply of human capital as well as the demand for better quality goods. Our results suggest that empirical research on the base of Gini-coefficient cannot generate a general relationship between wealth inequality and economic growth.

Suggested Citation

  • Shen, Ling, 2013. "How does wealth distribution affect firm's incentive to innovate better quality goods?," Economic Modelling, Elsevier, vol. 32(C), pages 516-523.
    • Handle: RePEc:eee:ecmode:v:32:y:2013:i:c:p:516-523
    DOI: 10.1016/j.econmod.2013.02.035
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    Cited by:

    1. Zhang, Muyang & Zhou, Guangsu & Fan, Gang, 2020. "Political Control and Economic Inequality: Evidence from Chinese Cities," China Economic Review, Elsevier, vol. 61(C).

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    More about this item

    Keywords

    Inequality; Economic growth;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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