Geoscience Reference
In-Depth Information
Fig. 9.7
Model frameworkâreal-financial sector and income distribution.
Source
: Azis & Yarcia
(
2014
) and Min (
2014
)
analysis in many emerging market economies where the import-content of many
export products is large.
19
The income generation is derived from the value added (VA), where returns on
primary inputs of labor (L) and capital (K) are denoted by WF. In turn, these returns
(WF) generate factor incomes (YF) including those from abroad (YFROW). How-
ever, total income (INC) consists of more than just factor income; it also includes
transfers between agents/institutions (ITRAN). Tax payments that subtract and
subsidies that add income are examples of these transfers, where size depends on
the prevailing fiscal policy. Thus, income of different agents, including households,
is influenced by both the level of economic activity and this non-factor income.
20
The way subsidies are allocated can have a significant impact on actual household
income; typically, most subsidies go to low-income households.
19
The dynamics of the use of imported inputs to produce exported goods, known as vertical
specialization (VS), is analyzed in Hummels et al. (
2001
). Amador and Cabral (
2009
) show that
vertical specialization (VS) in high-tech products has increased dramatically since the 1980s,
especially in emerging Asia. Some even label it a new paradigm in the organization of world
production, representing an important element of international trade.
20
The effect of income level on macro variables works through the expenditure side. Together
with government expenditure (GD) and net exports (E-M), real consumption (CD) reflects the size
of agents' expenditure (EXP) out of their disposable income (YCON). The latter is determined by
the income level (INC).
