6 Conclusions It was the purpose of this book is to analyze how the consumption structure changes when (i) average income rises or (ii) incomes are redistributed across individuals holding aggregate income constant. In chapter 2 we offered a gen- eral formulation of non-homothetic and hierarchic preferences. With quite few assumptions, we found tractable functional forms that match the empirical facts. Chapter 3 analyzed the interaction between endogenous growth and (demand driven) structural change. With hierarchic preferences, a rise in real income leads to a relative demand shift in the direction of the innovative goods. This implies that each industry will go (or has already gone) through a cycle of take-off, ma- turity and stagnation. In equilibrium, there are industries with an expanding and industries with a declining employment share. Nonetheless, we saw that macroe- conomic aggregates grow pari passu at a constant rate. Thus, the model gives an intuitive explanation for structural change and it is able to explain structural change and balanced growth at the same time. In chapter 4 we explored the relationship between inequality and demand struc- ture in an endogenous growth model when consumers have hierarchic preferences. This enabled us to study the impact of inequality on demand for innovative prod- ucts, on their prices, and hence on research incentives. As a result, changes in inequality affect the aggregate price structure and there may be market exclusion of the poor. With exclusion, higher inequality tends to increase growth because the profit share increases. However, higher inequality due to a bigger group of poor
144 6. Conclusions
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