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A model of industrialization and rural income distribution

A model of industrialization and rural income distribution The purpose of this paper is to explore how the processes of (de)industrialization and rural income distribution interact with each other and their implications for economic growth and welfare.Design/methodology/approachThis paper takes a dynamic general-equilibrium and theoretical approach.FindingsThe author develops a dynamic general-equilibrium model to analytically characterize how (de) industrialization interacts with rural income distribution, and also explores the implications for aggregate GDP growth, the evolution of rural income distribution as well as welfare. Redistributive policies are shown to sometimes enhance GDP and welfare by boosting the production of the goods with high desirability (or productivity) but constrained by depressed demand due to income inequality, and internalizing the dynamic impact of private production and consumption decisions on future public productivities.Practical implicationsThe research suggests that rural income distribution and (de)industrialization are intrinsically related, so policies or institutional distortions on one process would, in general, affect the other. Redistributive policies are shown to sometimes enhance GDP and welfare by enhancing industrialization.Originality/valueThe paper contributes to the literature of industrialization and structural change at large in several aspects. First, a key novel feature of our model is that the Engle’s law is captured by a quasi-linear utility function, which differs from the standard non-homothetic functions in this literature. Second, our paper contributes to the literature of structural change by showing how (de)industrialization works when sectorial productivity changes are endogenous. The paper also sheds light on the determination of rural income distribution and its evolution in the process of structural change and rural-urban migration. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png China Agricultural Economic Review Emerald Publishing

A model of industrialization and rural income distribution

China Agricultural Economic Review , Volume 11 (3): 29 – Sep 18, 2019

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Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1756-137X
DOI
10.1108/caer-02-2019-0030
Publisher site
See Article on Publisher Site

Abstract

The purpose of this paper is to explore how the processes of (de)industrialization and rural income distribution interact with each other and their implications for economic growth and welfare.Design/methodology/approachThis paper takes a dynamic general-equilibrium and theoretical approach.FindingsThe author develops a dynamic general-equilibrium model to analytically characterize how (de) industrialization interacts with rural income distribution, and also explores the implications for aggregate GDP growth, the evolution of rural income distribution as well as welfare. Redistributive policies are shown to sometimes enhance GDP and welfare by boosting the production of the goods with high desirability (or productivity) but constrained by depressed demand due to income inequality, and internalizing the dynamic impact of private production and consumption decisions on future public productivities.Practical implicationsThe research suggests that rural income distribution and (de)industrialization are intrinsically related, so policies or institutional distortions on one process would, in general, affect the other. Redistributive policies are shown to sometimes enhance GDP and welfare by enhancing industrialization.Originality/valueThe paper contributes to the literature of industrialization and structural change at large in several aspects. First, a key novel feature of our model is that the Engle’s law is captured by a quasi-linear utility function, which differs from the standard non-homothetic functions in this literature. Second, our paper contributes to the literature of structural change by showing how (de)industrialization works when sectorial productivity changes are endogenous. The paper also sheds light on the determination of rural income distribution and its evolution in the process of structural change and rural-urban migration.

Journal

China Agricultural Economic ReviewEmerald Publishing

Published: Sep 18, 2019

Keywords: Economic growth; Human capital; Structural change; Income distribution; Non-homothetic preference; E21; E60; O00; O41

References