Costly technology adoption, redistribution and growth

Lahiri, Radhika & Ratnasiri, Shyama (2013) Costly technology adoption, redistribution and growth. Economic Modelling, 33, pp. 440-449.

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We study a political economy model which aims to understand the diversity in the growth and technology-adoption experiences in different economies. In this model the cost of technology adoption is endogenous and varies across heterogeneous agents. Agents in the model vote on the proportion of revenues allocated towards such expenditures. In the early stages of development, the political-economy outcome of the model ensures that a sub-optimal proportion of government revenue is used to finance adoption-cost reducing expenditures. This sub-optimality is due to the presence of inequality; agents at the lower end of the distribution favor a larger amount of revenue allocated towards redistribution in the form of lump-sum transfers. Eventually all individuals make the switch to the better technology and their incomes converge. The outcomes of the model therefore explain why public choice is more likely to be conservative in nature; it represents the majority choice given conflicting preferences among agents. Consequently, the transition path towards growth and technology adoption varies across countries depending on initial levels of inequality.

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ID Code: 60247
Item Type: Journal Article
Refereed: Yes
Keywords: Economic growth, Political economy, Technology adoption, Inequality, Redistribution
DOI: 10.1016/j.econmod.2013.04.038
ISSN: 0264-9993
Subjects: Australian and New Zealand Standard Research Classification > ECONOMICS (140000)
Divisions: Current > QUT Faculties and Divisions > QUT Business School
Current > Schools > School of Economics & Finance
Copyright Owner: Copyright 2013 Elsevier B.V.
Copyright Statement: NOTICE: this is the author’s version of a work that was accepted for publication in Economic Modelling. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Economic Modelling, [Volume 33, (July 2013)] DOI: 10.1016/j.econmod.2013.04.038
Deposited On: 27 May 2013 22:35
Last Modified: 11 Aug 2016 00:05

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