Bounded learning by doing, inequality, and multi-sector growth: A middle-class perspective.
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This study presents a multisector model of middle-class-led economic growth, whereby, on the one hand, the middle class plays a key role in determining technical progress, while, on the other hand, both its size and income share are the result of past economic growth. Learn- ing by doing, which is assumed to be sector-speci c, bounded from above, and constrained by a minimum scale restriction, is the primary source of productivity gains. The emphasis is then placed on the entire income distribution, which a¤ects the composition of demand -span of goods consumed- and in turn, the speed and the extent of the learning process in the set of goods produced. The model exhibits an inverted-U relationship between inequality and economic growth, which re ects the following trade-o¤: An economy cannot learn both quickly and simultaneously in a wide range of sectors. It is constrained in this respect by its income/skill distribution and the size of its labor force, with consequences on growth-enhancing strategies by means of income redistributions.
D31 - Personal Income, Wealth, and Their DistributionsL16 - Industrial Organization and Macroeconomics; Industrial Structure and Structural Change; Industrial Price IndicesO33 - Technological Change: Choices and Consequences; Diffusion ProcessesO40 - Economic Growth and Aggregate Productivity: General