Income Inequality, Demand-Induced Innovation and Technological Progress

Much of the existing literature on the relationship between technological progress and inequality primarily deals with the effects of technological change on inequality within an economy, relatively fewer studies examine the reverse relationship of the effects of inequality on innovation or even on technological progress. Based on the related literature, we analyze the possible indirect effecting mechanism of inequality on technological progress, and then we test it empirically by using system generalized method of moments (GMM) with Chinese industrial panel data from 1999 to 2007. The result shows that income inequality can indirectly affect technological progress: income inequality is not conductive to the increasing of R&D input, impeding the technological progress; it is neither conductive to the entry of foreign technology, restraining the technological progress of capital industry.