Chapter 6 Long-run income distribution and growth

Abstract

Publisher Summary This chapter presents a discussion on the long-run income distribution and growth. Development economics began macro. If the whole economy changes structure during the course of “development,” then to understand the process one has to look at the economy as a whole. Increasing poverty and declining productive potential resulting from stabilization programs aimed at offsetting external shocks have been the rule for most developing countries in the 1980s. The long-run approach is presumably of interest because it tells something about how economies change in historical time—in particular, over the century or two of what Kuznets (1966) calls modern economic growth. Schumpeter's “Theory of Economic Development” is infrequently read nowadays, but it is the true origin of the field. Schumpeter's theory of development is interesting in itself, because it emphasizes technical and institutional change. Schumpeter begins with the kind of theory now considered long run, and in a leap discards it for more interesting processes that have been dropped from the orthodox canon. One key analytical question is how the entrepreneur obtains resources to innovate. The chapter also discusses demand-driven models; shades of Marx, the neoclassical resurgence—trade, structuralists versus monetarists, and so on. One function of neoclassical theory is to defuse radical economics by embellishment with optimizing agents and suppression of social content.