2012/06 | LEM Working Paper Series | |
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The role of technology, organisation, and demand in growth and income distribution |
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Tommaso Ciarli, Andre Lorentz, Maria Savona, Marco Valente |
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Keywords | ||
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Structural change; growth; income distribution; consumption; technological change
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JEL Classifications | ||
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O41, L16, C63, O14
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Abstract | ||
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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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