Theory and Empirics
Edited by Neri Salvadori, Pasquale Commendatore and Massimo Tamberi
Chapter 9: Distribution of Agricultural Surplus and Industrial Takeoff
* Ennio Bilancini and Simone D’Alessandro 9.1. INTRODUCTION This chapter analyses how the distribution of agricultural product between landlords and peasants affects both industrial takeoff and aggregate income through the demand side. Our contribution follows that part of the literature on structural change which investigates the link between inequality, industrialization and income and that focuses on the effects of income distribution on demand (see for instance Murphy et al., 1989; Baland and Ray, 1991; Eswaran and Kotwal, 1993; Matsuyama, 2002; Fiaschi and Signorino, 2003).1 We follow the traditional modelling approach of this literature assuming a dual economy (see Rosenstein-Rodan, 1943; Lewis, 1954, 1967; Fleming, 1955). However, our model is built on that proposed by Murphy et al. (1989) in which industrialization is triggered by the domestic demand for manufactures. The key assumptions in Murphy et al. (1989) are that i) individuals have hierarchical preferences, ii) industrial production shows increasing returns because of a fixed set up cost, and iii) a fraction of the labour force receives, besides wages, a share of profits and rents. Given i), ii) and iii), the distribution of shares affects the composition of demand which, in turn, affects the profitability of mass production. The conclusion is that industrialization requires a ‘middle class as the source of the buying power for domestic manufactures’ (Murphy et al., 1989, p. 538). As in Bilancini and D’Alessandro (2005), we maintain the first two key assumptions of Murphy et al. (1989) while substituting the third with a functional division of property...
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