We characterize an equilibrium development process driven by the interaction of the distribution of wealth with credit constraints and the distribution of entrepreneurial skills. When efficient entrepreneurs are relatively abundant, a 'traditional' development process emerges in which the evolution of macroeconomic variables accord with empirical regularities and income inequality traces out a Kuznets curve. If, instead, efficient entrepreneurs are relatively scarce, the model generates long-run 'distributional cycles' driven by the endogenous interaction between credit constraints, entrepreneurial efficiency and equilibrium wages.
ASJC Scopus subject areas
- Economics and Econometrics