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What drives the cross-country growth and inequality correlation?

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  • Debasis Bandyopadhyay
  • Parantap Basu

Abstract

We present a neo-classical model that explores the determinants of growth-inequality correlation and attempts to reconcile the seemingly conflicting evidence on the nature of the growth-inequality relationship. The initial distribution of human capital determines the long-run income distribution and the growth rate by influencing the occupational choice of the agents. The steady-state proportion of adults that innovates and updates human capital is path dependent. The output elasticity of skilled-labour, barriers to knowledge spillovers, and the degree of redistribution determine the range of steady-state equilibria. From a calibration experiment we report that a skill-intensive technology, low barriers to knowledge spillovers, and high degrees of redistribution characterize the industrial countries with a positive growth-inequality correlation. A negative correlation between growth and inequality arises for the group of non-industrial countries with the opposite characteristics.

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Bibliographic Info

Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 38 (2005)
Issue (Month): 4 (November)
Pages: 1272-1297

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Handle: RePEc:cje:issued:v:38:y:2005:i:4:p:1272-1297

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  1. Amparo Castello & Rafael Domenech, 2002. "Human Capital Inequality and Economic Growth: Some New Evidence," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 112(478), pages C187-C200, March.
  2. Oded Galor & Joseph Zeira, 2013. "Income Distribution and Macroeconomics," Working Papers 2013-12, Brown University, Department of Economics.
  3. Stephen L. Parente & Edward C. Prescott, 2002. "Barriers to Riches," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661306, December.
  4. Galor, O. & Tsiddon, D., 1996. "Technological Progress, Mobility and Economic Growth," Papers, Tel Aviv 13-96, Tel Aviv.
  5. Bandyopadhyay, Debasis & Basu, Parantap, 2001. "Redistributive Tax and Growth in a Model with Discrete Occupational Choice," Australian Economic Papers, Wiley Blackwell, Wiley Blackwell, vol. 40(2), pages 111-32, June.
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Cited by:
  1. Basu, Parantap & Guariglia, Alessandra, 2007. "Foreign Direct Investment, inequality, and growth," Journal of Macroeconomics, Elsevier, Elsevier, vol. 29(4), pages 824-839, December.
  2. R. Andergassen & F. Nardini, 2004. "Educational Choice, Endogenous Inequality and Economic Development," Working Papers 503, Dipartimento Scienze Economiche, Universita' di Bologna.
  3. Parantap Basu & Alessandra Guariglia, 2004. " Inequality and Industrialization," CDMA Conference Paper Series 0401, Centre for Dynamic Macroeconomic Analysis.
  4. Lin Shu-Chin & Huang Ho-Chuan & Kim Dong-Hyeon & Yeh Chih-Chuan, 2009. "Nonlinearity between Inequality and Growth," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 13(2), pages 1-20, May.

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