Growth and inequality examined by integrating the Walrasian general equilibrium and neoclassical growth theories
Part of : International journal of economic sciences and applied research ; Vol.7, No.1, 2014, pages 7-32
Issue:
Pages:
7-32
Author:
Abstract:
This paper builds a heterogeneous-households growth model of a small open economy with fixed resource (land) by integrating the Walrasian general equilibrium and neoclassical growth theories. The production side consists of two sectors. We use an alternative utility function proposed by Zhang, which enable us to develop a dynamic growth model with genuine heterogeneity. The wealth and income inequality is due to household heterogeneity in preferences and human capital as well as the households ’ initial wealth. This is different from the standard Ramsey-type heterogeneous-households growth models, for instance, by Turnovsky and Garcia-Penalosa (2008), where agents are heterogen eous only in their initial capital endowment, not in preference or/and human capital. We simulate the model for an economy with three types of households. The system has a unique stable equilibrium point. We also simulate the motion of the national economy and carry out comparative dynamic analysis with regard to change s in the rate of interest, the population, the propensity to stay at home, and the propensity to save. The comparative dynamic analysis provides some important insights.
Subject:
Subject (LC):
Keywords:
growth, inequality, capital accumulation, small open economy, wealth and income distribution
Notes:
Περιέχει εικόνες και βιβλιογραφία
References (1):
- Aggelopoulou, D., Zografakis, St. and Sypsas, R, 2011, ‘Distribution of poverty andinequality indices for various groups in Greece using the bootstrap technique’,International Journal of Economic Sciences and Applied Research, 4, 2, pp. 81-97.Alesina, A. and Rodrik, D., 1994, ‘Distributive politics and economic growth’, QuarterlyJournal of Economics, 109, 2, pp. 465-490.Arrow, K. J., 1974, ‘General economic equilibrium: purpose, analytic techniques, collectivechoice’, American Economic Review, 64, 3, pp. 253-272.Arrow, K.J. and Debreu, G., 1954, ‘Existence of an equilibrium for a competitive economy, ’Econometrica, 22, 3, pp. 265-290.Arrow, K.J. and Hahn, F.H., 1971, General competitive analysis, Holden-Day, Inc., SanFrancisco.Azariadis, C., 1993, Intertemporal macroeconomics, Blackwell, Oxford.Barro, R.J., 2000, ‘Inequality and growth in a panel of countries’, Journal of EconomicGrowth, 5, 1, pp. 5-32.Barro, R.J., 2001, ‘Human capital and growth’, American Economic Review, 91, 1, pp.12-17.Barro, R.J. and Sala-i-Martin, X., 1995, Economic growth, McGraw-Hill, Inc., New York.Boucekkine, R., de la Croix, D. and Licandro, O., 2002, ‘Vintage human capital,demographic trends, and endogenous growth, ’ Journal of Economic Growth, 104, 2,pp. 340-375.Bretschger, L., 2013, ‘Population growth and natural-resource scarcity: Long-rundevelopment under seemingly unfavorable conditions’, The Scandinavian Journal ofEconomics, 115, 3, pp. 722-755.Brock, P.L., 1988, ‘Investment, the current account, and the relative price of non-tradedgoods in a small open economy’, Journal of International Economics, 24, 3-4, pp. 235-253.Burmeister, E. and Dobell, A.R., 1970, Mathematical theories of economic growth, CollierMacmillan Publishers, London.Castelló-Climent, A. and Hidalgo-Cabrillana, A., 2012, ‘The role of education quality andquantity in the process of economic development’, Economics of Education Review, 31,4,pp. 391-409.Chen, Y.C. and Tumovsky, S.T., 2010, ‘Growth and inequality in a small open economy’,Journal of Macroeconomics, 32, 2, pp. 497-514.Could, E.D., Moav, O. and Weinberg, B.A., 2001, ‘Precautionary demand for education,inequality, and technological progress’, Journal of Economic Growth, 6, 4, pp. 285-315.Cremers, E.T., 2006, ‘Dynamic efficiency in the two-sector overlapping generalizationsmodel ', Journal of Economic Dynamics & Control, 30, 11, pp. 1915-1936.Dana, R.A, Florenzano, M. and Levy, D., 1989, ‘Production prices and general equilibriumprices: A long-run property of a Leontief economy ’, Journal of Mathematical Economics, 18, 3,pp. 263-280.Debreu, G., 1959, Theory of value, Wiley, New York.Diewert, W., 1977, ‘Walras’ theory of capital formation and the existence of a temporaryequilibrium’, Schwödiauer, G., Equilibrium and Disequilibrium in Economic Theory,Reidel, Dordrecht.Drugeon, J.P. and Venditti, A., 2001, ‘Intersectoral external effects, multiplicities &indeterminacies’, Journal of Economic Dynamics & Control, 25, 5, pp. 765-787.Easterlin, R., 1981, ‘Why isn’t the whole world developed?’, Journal of Economic History,41, 1, pp. 1-19.Eatwell, J., 1987, ‘Walras’ theory of capital’, Eatwell, J., Milgate, M., and Newmann, P.,The New Paigrave Dictionary of Political Economy, MacMillan, London.Ehrlich, I. and Lui, F., 1997, ‘The problem of population and growth: A review of theliterature from Malthus to contemporary models of endogenous population andendogenous growth’, Journal of Economic Dynamics and Control, 21,1, pp. 205-224.Fleisher, B., Hu, Y.F., Li, H.Z., and Kim, S.H., 2011, ‘Economic transition, higher educationand worker productivity in China’, Journal of Development Economics, 94, 1, pp. 86-94.Forbes, K., 2000, ‘A reassessment of the relationship between inequality and growth’,American Economic Review, 90, 4, pp. 869-887.Furuoka, F., 2009, ‘Population growth and economic development: New empirical evidencefrom Thailand’, Economics Bulletin, 29, 1, pp. 1-14.Hanushek, E. and Kimko, D., 2000, ‘Schooling, labor-force quality and the growth ofnations’ American Economic Review, 90, 5, pp. 1194-11204.Harrison, S.G., 2003, ‘Returns to scale and externalities in the consumption and investmentsectors’, Review of Economic Dynamics, 6, 4, pp. 963-976.Herrendorf, B. and Valentinyi, A., 2006, On the stability of the two-sector neoclassicalgrowth model with externalities ’, Journal of Economic Dynamics and Control, 30, 8,pp. 1339-1361.Gale, D., 1955, ‘The law of supply and demand’, Mathematica Scandinavica, 3, 1, pp. 33-44Gali, J. and Monacelli, T., 2005, ‘Monetary policy and exchange rate volatility in a smallopen economy’, Review of Economic Studies, 72, 4, pp. 707-734.Galor, O., 1992, ‘Two-sector overlapping-generations model: A global characterization ofthe dynamical system’, Econometrica, 60, 6, pp. 1351-1386.Galor, O. and Weil, D., 1999, ‘From Malthusian stagnation to modem growth’, AmericanEconomic Review, 89, 2, pp. 150-154.Impicciatore, G., Panaccione, L. and Ruscitti, F., 2012, ‘Walras’theory of capital formation:An intertemporal equilibrium reformation’, Journal of Economic Theory, 106, 1, pp.99-118.Jensen, B.S., 2003, ‘Walrasian general equilibrium allocations and dynamics in two-sectorgrowth models’, German Economic Review, 4, 1, pp. 53-87.Jensen, B.S., Alsholm, P.K., Larsen, M.E. and Jensen, J.M., 2005, ‘Dynamic structure,exogeneity, phase portraits, growth paths, and scale and substitution elasticities’, ReviewofInternational Economics, 13, 1, pp. 59-89.Jensen, B.S. and Larsen, M.E., 2005, ‘General equilibrium dynamics of multi-sector growthmodels ', Journal of Economics, 10, 1,ΡΡ· 17-56.Jensen, B.S. and Lehmijoki, U., 2011, ‘Homothetic multisector growth models’, LaGrandville, O. de., Frontiers of Economics and Globalization, Emerald, UnitedKingdom.Jensen, B.S., Richter, M., Wang, C. and Alsholm, P.K., 2001, ‘Saving rates, technology,trade and stochastic dynamics’, Review of Development Economics, 5, 2, pp. 182-204.Kanemoto, Y., 1980, Theories of urban externalities, North-Holland Publishing, Amsterdam.Krueger, A.B. and Lindahl, M., 2001, ‘Education for growth: Why and for whom’, JournalofEconomic Literature, 39, 4, pp. 1101-1136.Kurz, M., 1963, ‘The two sector extension of Swan’s model of economic growth: The caseofno technical change’, International Economic Review, 4, 1, PP- 1-12.Li, FLY. and Zou, H.F., 1998, ‘Income inequality is not harmful to growth: Theory andevidence’, Review of Development Economics, 2, 3, pp. 318-334.Li, J.L. and Lin S.L., 2008, ‘Existence and uniqueness of steady-state equilibrium in atwo-sector overlapping generations model’, Journal of Economic Theory, 141, 255-75.Mas-Colell, A., Whinston, M.D. and Green, J.R., 1995, Microeconomic theory, OxfordUniversity Press, New York.McKenzie, L.W., 1959, On the existence of general equilibrium for a competitive market’,Econometrica, 27, 1, pp. 54-71.Meade, J.E., 1961, A neoclassical theory of economic growth, Allen and Unwin, London.Mino, K., 1996, ‘Analysis of a two-sector model of endogenous growth with capital incometaxation’, International Economic Review, 37, 1, pp. 227-251.Montesano, A., 2008, ‘A restatement of Walras’ theory of capitalization and money’,History of Economics Review, 47, 1, pp. 86-109.Morishima, M., 1964, Equilibrium, stability and growth, Oxford University Press, Oxford.Morishima, M., 1977, Walras’economics, Cambridge University Press, Cambridge.Nikaido, H., 1956, On the classical multilateral exchange problem’, Metroeconomica, 8,2,pp. 135-145.Nikaido, FL, 1968, Convex structures and economic theory, Academic Press, New York.Obstfeld, M. and Rogoff, K., 1998, Foundations of international macroeconomics, MITPress, Mass., Cambridge.Pasinetti, L.L., 1974, Growth and income distribution - essays in economic theory,Cambridge University Press, Cambridge.Perotti, R., 1996, ‘Growth, income distribution, and democracy: What the data say’, JournalofEconomic Growth, 1, 2, pp. 149-187.Persson, T. andTabellini, G., 1994, ‘Is inequality harmful for growth?’, American EconomicReview, 84, 3, pp. 600-621.Salvadori, N., 1991, ‘Post-Keynesian theory of distribution in the long run’, Nell, E.J.and Semmler, W., Nicholas Kaldor and mainstream economics - Confrontation orconvergence? , Macmillan, London.Solow, R., 1956, ‘A contribution to the theory of growth’, Quarterly Journal of Economics70, 1, pp. 65-94.Sorger, G., 2000, ‘Income and wealth distribution in a simple growth model’, EconomicTheory, 16, 1, pp. 43-62.Tilak, J.B.C., 1989, Education and its relation to economic growth, poverty and incomedistribution: past evidence and future analysis, World Bank, Washington.Tselios, V, 2008, ‘Income and educational inequalities in the regions of the EuropeanUnion: Geographically spillovers under welfare state restrictions ’, Papers in RegionalScience, 87, 3, pp. 403-430.Stiglitz, J.E., 1967, ‘A two sector two class model of economic growth’, Review of EconomicStudies, 34, 2, pp. 227-238.Stockman, D.R., 2009, ‘Chaos and sector-specific externalities ’, Journal of EconomicDynamics and Control, 33, 12, pp. 2030-2046.Takayama, A., 1985, Mathematical economics, Cambridge University Press, Cambridge,Tumovsky, S.T. and Garcia-Penalosa, C., 2008, ‘Distributional dynamics in a neoclassicalgrowth model: The role of elastic labor supply,’ Journal of Economic Dynamics &Control, 32, 5, pp. 1399-1431.Uzawa, H., 1961, On a two-sector model of economic growth’, Review of EconomicStudies, 29, 1, pp. 47-70.Uzawa, H., 1963, On a Two-Sector Model of Economic Growth Γ, Review of EconomicStudies, 30, 2, pp. 105-18.Walras, L., 1874, Elements of pure economics, translated from the French by W. Jaffé,1954, Allen and Unwin, London.Yao, W.J., Kinugasa, T., and Hamori, S., 2013, ‘An empirical analysis of the relationshipbetween economic development and population growth in China’, Applied Economics,45, 33, pp. 4651-4561.Zhang, W.B., 1993, ‘Woman’s labor participation and economic growth - Creativity,knowledge utilization and family preference’, Economics Letters, 42, 1, pp. 105-110.Zhang, W.B., 2012a, ‘Tourism and economic structure in a small-open growth model’,Journal of Environmental Management and Tourism, 3, 2, pp. 76-92.Zhang, W.B., 2012b, ‘Economic growth with heterogeneous households, gender divisionoflabor, and elastic labor supply’, Journal of Income Distribution, 21,2, pp. 15-37.
