Functional Distribution, Land Ownership and Industrial Takeoff: The Role of Effective Demand

In this paper we analyze how the distribution of land property rights affects industrial takeoff and aggregate income through its impact on effective demand. We apply a modified version of the model provided in Murphy et al. (1989a) which allows us to analyze the role of land distribution when it is independent of the distribution of firm ownership. We extend the result of Murphy et al. (1989a) by showing that industrialization and income depend non-monotonically on the distribution of land and by demonstrating that this result is due to the way land distribution affects the distribution of profits among firms. Moreover, we show that there may be a tradeoff between industrialization and income, the latter being associated with a distribution of land which is more equal than that associated with maximum industrialization.