Non-homothetic preferences and growth
The Journal of International Trade & Economic Development, 2001, vol. 9, issue 2, 151-171
We observe that countries at low levels of income invest at lower rates than those at higher levels of income. This paper explains this fact as a consequence of Engel's law, i.e. that there is an inverse relation between expenditure and its proportion spent on food. It introduces non-homothetic preferences based on Engel's law in a simple Solow model. These preferences imply rates of net investment that increase with the level of income as we approach the steady state. Increasing investment rates imply a positive correlation between growth rates and the level of income, at low levels of income, rather than an inverse relation, as the usual Solow model implies. The existence of a positive correlation between income growth rates and income levels, at low levels of income in the presence of this type of preference, has already been shown in a previous paper for a closed economy. The purpose of this paper is to show that this positive correlation persists when we introduce trade into the model.
Keywords: Engel's Law; Growth; Investment Rates (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed
Downloads: (external link)
Access to full text is restricted to subscribers.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:taf:jitecd:v:9:y:2001:i:2:p:151-171
Ordering information: This journal article can be ordered from
Access Statistics for this article
The Journal of International Trade & Economic Development is currently edited by Pasquale Sgro, David E.A. Giles and Charles van Marrewijk
More articles in The Journal of International Trade & Economic Development from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().