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

a r t i c l e i n f o 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. The relationship between a country's inequality and its economic growth has been a major concern of economists for more than a century. Yet it is far from being well understood. Some crosscountry studies (e.g., show that income inequality negatively impacts long term growth rates. Nonetheless, there also is evidence that income inequality has a positive impact on short or medium-term growth rates (Forbes, 2000), and that the relationship between income distribution and the long-term growth rate is non-linear (Banerjee and Duflo, 2003; Chen, 2003). The ambiguous empirical results imply that there is not a clear relationship between income inequality and economic growth (Barro, 2000). Hence, it is important for economists to develop models which illustrate the possible different effects of inequality on economic growth under different circumstances. The existing theoretical wisdom has proposed either a negative or a positive relationship between initial wealth inequality and economic growth. 1 Hence, none of them alone is consistent with all the above empirical evidences. This paper investigates the relationship between wealth distribution and the kind of growth driven by innovation. In this framework of Schumpeterian growth, it will be shown that both are extreme cases in an integrating simple model. Thus, our model coincides with the empirical evidences, which are seemingly contradictory. We further the analysis of the relationship between wealth inequality and economic growth in two …