2012/06 LEM Working Paper Series

The role of technology, organisation, and demand in growth and income distribution

Tommaso Ciarli, Andre Lorentz, Maria Savona, Marco Valente
Structural change; growth; income distribution; consumption; technological change

  JEL Classifications
O41, L16, C63, O14

The paper proposes a model that explains cross-country growth divergences over time for different aspects of structural change. The model formalises the links between production technology, firm organisation (functional composition of employment) on the supply side and the endogenous evolution of income distribution and consumption patterns on the demand side. Wage distribution is the main channel between the organisation of firms and consumption patterns, and firm selection is the main trigger of investment in new capital, productivity gains and cumulative growth. The model is able to reproduce empirical stylised facts on growth and income inequality associated with different stages of growth. We use VARs to estimate the causal relations between the three aspects of structural change. We then analyse the effect of the parameters that define the structure of an economy --and the way in which this unfolds through time-- on growth and income distribution via numerical simulation. Product variety, differences in consumption preferences, organisational complexity and production technology determine whether the economy experiences a take-off or a stagnating growth, and the associated distribution of income.
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