Fair and Inclusive Markets: Why Dynamism Matters

IMF Working Papers, February 5, 2021

Source details

Authors: Reda Cherif, Fuad Hasanov
Date: February 5, 2021
Core thesis: "We show empirical evidence that there may not be a tradeoff between market income inequality and high sustained growth, which is key for poverty alleviation."
Central argument: Economies that achieved high sustained growth and low market income inequality are characterized by dynamism—a drive toward sophisticated export industries, innovation, and creative destruction and a high level of competition.
Emphasis: "What a country produces and how much it competes domestically and internationally are important for achieving fair and inclusive markets."
Scope: Exploration of policy options to steer industrial and market structures toward providing growth opportunities for both workers and firms.

There may not be a tradeoff between market income inequality and high sustained growth; both can coexist.
Characteristics of successful economies with both high growth and low market income inequality:
- Dynamism toward sophisticated export industries.
- Innovation and creative destruction.
- High level of competition.
Market structure determinants highlighted:
- Production composition (what a country produces).
- Degree of domestic and international competition.

The paper explores policy options aimed at:
- Steering industrial structure toward more sophisticated activities.
- Promoting innovation and creative destruction.
- Increasing domestic and international competition.
- Providing growth opportunities for both workers and firms.

Subject: Competition, Inclusive growth, Income, Income distribution, Income inequality
Keywords: creative destruction, industrial policy, Inequality, innovation, laggard firm, manufacturing, market power, monopsony power, panel data, sophistication, supply firm, technology company, WP