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Wealth distribution and the underdevelopment trap

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  • Hiroto Takahashi

Abstract

This paper shows the possibility of the underdevelopment trap with its associated wealth distribution. The poor face borrowing constraints when they decide to finance their investment. This makes them unable to invest in large high-productivity technology, and only allows them to invest in small low-productivity technology. There are at least two steady states in which the interest rate and wealth distribution are endogenously determined. In one steady state, all agents receive an identical and high level of wealth, and in another steady state the distribution of wealth polarizes to two levels. The per capita average level of wealth and income is higher in the former steady state than in the latter one.

Suggested Citation

  • Hiroto Takahashi, 2004. "Wealth distribution and the underdevelopment trap," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 13(1), pages 1-21.
    • Handle: RePEc:taf:jitecd:v:13:y:2004:i:1:p:1-21
    DOI: 10.1080/0963819042000213525
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    References listed on IDEAS

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    1. Kiminori Matsuyama, 2000. "Endogenous Inequality," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 67(4), pages 743-759.
    2. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-298, April.
    3. Philippe Aghion & Patrick Bolton, 1997. "A Theory of Trickle-Down Growth and Development," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 64(2), pages 151-172.
    4. Oded Galor & Joseph Zeira, 1993. "Income Distribution and Macroeconomics," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(1), pages 35-52.
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