Innovation and Redistribution as Global Outlet Markets Drivers: Some Options of Economic Modeling.

Piero Benazzo

Abstract


Purpose

To investigate into an alternative economic paradigm rather than the previous one that has allowed the current crisis without yet viable solutions. This paradigm is focused on the outlet markets as playing field of competitiveness.

Methodology

Previous theoretical considerations take evidence from macro facts in history of economics and further develop them in a logical theoretical economic paradigm. Some limits of the current theoretical mainstream framework are considered. Main alternative fundamental dynamics are analysed and organised hypothesising some fundamental model options for equations.

Results

The analysis provides a theoretical framework, including an inequality trap that would shrink global outlet markets, with some main equations. These are intended to represent the theoretical analysis and lay some foundational options for using statistical data in an alternative paradigm in which low inequality plays a fundamental economic role in the generation of outlet markets.

The theoretical contribution

Previous theoretical research has analysed how the development factors in macroeconomics would be low inequality from the demand side and fast increase in productivity from the supply side. It has also defined how an increase in inequality generates an inequality trap from the demand side: When increase in productivity accrues mostly to the wealthier, inequality increases and added purchasing power for the wealthier would generate inflation. Reaction from the low middle class would be a decrease of demand in the wealth sector, the one beyond subsistence, in order to economise and maintain the necessary consumption in an inflated subsistence sector. Their basket of goods changes in order to safeguard the subsistence. This would generate a higher inflation in the subsistence sector compared to the other, defined as wealth sector. The future cash flows in the subsistence sector would tend to enlarge their weight compared to those in a shrinking wealth sector. Eventually, savings would be redirected more in the subsistence sector, generating a real estate bubble yielding further inflation in the subsistence sector. Such inflation would shrink the outlet markets playfield of competitiveness. From the supply side, the competitiveness decreases costs thanks to increased productivity and to delocalization. Increased productivity enlarges global outlet markets counterbalancing the defined demand side inequality trap. However, eventually the nominal purchasing power remaining for the wealth sector becomes so squeezed that the inequality trap overtakes the supply side decreases of costs, deteriorating the outlet markets into a negative spiral.

The herewith analysis proposes innovation and redistribution as main variables and some options of main equations for further research.

Practical implications

The analysis intends to contribute in providing an alternative theoretical framework defining needs of particular statistical data and use of existing data in alternative ways for supporting an alternative economic paradigm. This should contribute to drawing policy implications and alternative options for addressing the economic downturn.

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