Accepted Manuscript Economic growth and the problem of balancing consumption between rich and poor (original) (raw)
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Economic growth and the problem of balancing consumption between rich and poor
Economic Analysis and Policy, 2014
As an economy experiences high growth rates, some sections of the population enjoy a more than proportionate rise in income. This leads to an increased allocation of resources towards the production of luxury goods. Since the production of luxury goods often requires more resources than the production of necessary goods, it may reduce not only the production of necessary goods, but also total production. This paper considers Houthakker's Indirect Addilog Utility Model and constructs a theoretical model to present this particular problem of growth. As an illustrative example, the model considers rice, where the land requirement for the production of aromatic rice is greater than that of ordinary rice. As income levels of the rich increases, the demand for aromatic rice increases and hence there is a shift in land devoted from the production of ordinary rice to high quality rice. Consequently, the total production of rice may decline. The model identifies factors that determine this possibility. The paper also looks at the relevant policy issues in this regard.
SSRN Electronic Journal, 2008
As an economy treads along a higher growth path, some sections of people enjoy more than proportionate rise in income. This increase in prosperity changes the demand pattern in the economy and by the market mechanism, production of goods used by the prospering sections goes up. As requirements of resources to produce rich man's consumption item is often more than that for low income people's consumption item, supply of poor man's production items may fall sizably in the process. This paper considers Indirect Houthakker's Addilog Utility Model and constructs a theoretical model to bring home this particular problem of growth. As an illustrative example the model considers an essential item like rice, where average land requirement of aromatic rice is greater than that of ordinary rice. As income level of some sections of people rise, demand for aromatic rice rises and hence there is shift of land from the use of ordinary rice production to use of high quality rice production. As a result, total production of rice may decline at some stage. The model identifies factors that determine the possibility of such fall in total production and highlights the critical level of production of high quality good wherefrom decline in total production begins. The paper also looks at the policy issues in the backdrop of findings of the theoretical model.
Determinants of Growth in Consumption of Rural Household in Bangladesh: A Regression Analysis
The purpose of this study is to investigate the determinants of growth in consumption of rural households in Bangladesh in the post-liberalisation era. Using data from both primary and secondary sources, the study applied the ordinary least square (OLS) regression models to assess the determinants. It also used both economic and non-economic characteristics (endowments) simultaneously for considering their joint effects on determinants. The study found that non-farm household dummy was the largest positive determinant of household consumption followed by household land area in 2010. Conversely, net buyer dummy variable was the largest negative determinant followed by rice price in the same year. Food consumption was the largest determinant of growth in household consumption followed by household land area in 1985-86. Rice consumption was the largest negative determinant of growth in consumption in 1985-86 but was the largest positive determinant in 2005. This study argues that agricultural trade liberalisation contributed to an increase in rice production and consumption, leading to higher growth in household consumption in the post-liberalisation era. Three difference variableschanges in share of income from agriculture, business-commerce, and house rentwere the positive determinants of growth in both 1985-86 and 2005. However, income-from-rice and change-in-income-from-rice were not statistically significant. This analysis suggests that it was not the rice income but income from other sources were responsible for the growth in household consumption in both 1985-86 2005. The study suggests that while agricultural trade liberalisation positively impacted on rice production, resulting from technological transformation and leading to a substantial decrease in both producer and consumer prices of rice, farm households were not benefited much from rice income in determining consumption growth (welfare). This might be attributed to a greater decrease in the producer price than that in the consumer price. This study argues that some farmers may shift from rice to other agricultural or non-farm activities, thus jeopardising the country"s food security and self-sufficiency efforts in food grain production. Therefore, it is crucial to formulate government policies to support farm households in the form of income transfer such as tax reduction and production subsidy in order to avoid food security and macroeconomic instability, resulting from high food prices due to a shortage of rice production.
On relative wealth effects and the optimality of growth
Economics Letters, 1997
We present a model of endogenous growth in which a desire for social status lead individuals to care about their relative wealth. The growth rate of the economy is socially optimal if the status motive is sufficiently important, but the presence of status seeking may also lead to excessive growth.
Income Distribution and Consumption Patterns in a’Classical’Growth Model
2003
Historians of the Industrial Revolution have not failed to study the role played by demand factors in the process of industrialization of an agricultural economy. Landes (1969, ch. II) emphasizes the relation between income distribution, consumption patterns and the growth of manufactures in the eighteenth century England. In his view, the middle classes flourished thanks to favourable income and wealth distribution.
Consumption and Economic Growth in the Framework of Classical Economics
2015
1. Introduction 10 2. Cantillon 2.1 Introduction 16 2.2 Equilibrium prices and income distribution 2.3 Consumption and activity levels 2.4 Conclusion 3. Quesnay 29 3.1 Introduction 29 3.2 Bon prix and income distribution: the indeterminateness of profits 31 3.3 Sectoral quantity dynamics 3.4 Consumption propensities and activity levels 3.5 Conclusion 4. Turgot 42 6. Smith 68 6.1 Introduction 68 6.2 Natural prices and income distribution 70 6.3 Growth dynamics 6.4 Consumption and economic growth 78 6.5 Conclusion 7. Ricardo 82 7.1 Introduction 82 7.2 Theory of value and distribution 84 7.3 Theory of economic growth 90 7.4 The apparent irrelevance of demand 95 7.5 Conclusion 8. Sismondi 101 8.1 Introduction 8.2 Theory of value and distribution 8.3 Theory of economic growth 8.4 Consumption and economic growth 111 8.5 Conclusion 9. Malthus 9.1 Introduction 9.2 Theory of value and distribution 8 9.3 Theory of economic growth 126 9.4 Consumption and economic growth 9.5 Conclusion 135 10. Marx 10.1 Introduction 137 10.2 Theory of value and distribution 139 10.3 Theory of economic growth 143 10.4 The problem of demand deficiency 10.5 Conclusion 154 11. Kalecki and Classical Economics 11.1 Consumption demand and classical growth theory 156 11.2 Marx-Luxemburg-Kalecki 11.3 Kalecki, Keynes and classical economics 168 11.4 Conclusion: demand-led growth 12. Consumption and Demand-led Growth 180 12.1 A simple growth model 12.2 Growth through autonomous consumption 12.3 Demand-led growth and classical economics 191 13. Conclusion 198
Food consumption patterns and economic growth. Increasing affluence and the use of natural resources
Appetite, 2010
This study analyzes relationships between food supply, consumption and income, taking supply, meat and dairy, and consumption composition (in macronutrients) as indicators, with annual per capita GDP as indicator for income. It compares food consumption patterns for 57 countries (2001) and gives time trends for western and southern Europe. Cross-sectional and time series relationships show similar patterns of change. For low income countries, GDP increase is accompanied by changes towards food consumption patterns with large gaps between supply and actual consumption. Total supply differs by a factor of two between low and high income countries. People in low income countries derive nutritional energy mainly from carbohydrates; the contribution of fats is small, that of protein the same as for high income countries and that of meat and dairy negligible. People in high income countries derive nutritional energy mainly from carbohydrates and fat, with substantial contribution of meat and dairy. Whenever and wherever economic growth occurs, food consumption shows similar change in direction. The European nutrition transition happened gradually, enabling agriculture and trade to keep pace with demand growth. Continuation of present economic trends might cause significant pressure on natural resources, because changes in food demand occur much faster than in the past, especially in Asia. ß
An Econometric Analysis of Cereal Consumption in Rural India
As a result of economic planning there was a significant growth in the production in agriculture, industry and service sectors. The significant changes in all the sectors of the economy have a direct impact on the welfare of the people. The leading review of developing country surveys reveals that the consumption and saving are the best measures of the economic component of living standards. This study examines the various forms of consumption expenditure functions under Keynes’s Psychological Law (or Absolute Income Theory) of Consumption Function. Keynes (1936) "General Theory” laid the foundations of modern macroeconomics. According to Keynes, as income increases, consumption increases, but not as much as the increase in income. In this paper we have suggest a common model for cereal consumption for rural population of India at states and national level. We found that almost for all states and even at India level, power model 𝐲=𝐚.𝐱𝐛 .𝐞 suited the best with constants a>0 and 0< b<1. Here b gives the value of elasticity of cereal consumption with respect to total consumption. In our study we found b=0.537, which means that 1%change in total consumption expenditure(x) leads to 0.537% change in cereals consumption expenditure(y).For states b is found to vary between 0.120 to 0.689. This shows the importance of cereals as an item of