Endogenous institutions and conflict in the model of transition from stagnation to growth
We investigate the impact of inequality in wealth distribution on the joint dynamics of conflict intensity and pro-growth institutions in the historical perspective. We build a two-sector endogenous growth model with political conflict between the traditional elite and the emerging class of capitalists during the transition from stagnation to growth. First, our model attempts to explain different moments of industrialization worldwide. Second, we capture various paths of conflict intensity: hump-shaped path, almost absent conflict, and other. We show that the distribution of wealth has a non-monotonous impact on the intensity of conflict and institutions supporting industrialization. Namely, higher inequality in land distribution may be detrimental to industrialization, but may lower conflict intensity. In contrast, higher inequality in capital holdings may be growth-enhancing.