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Risky human capital investment, income distribution, and macroeconomic dynamics

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  • Grossmann, Volker

Abstract

This paper examines the implications of human capital risk for the relationship between inequality and economic development. It argues that due to missing insurance markets for human capital risk, the initial distribution of family wealth may play an important role for an economy's process of development fueled by human capital accumulation. The analysis suggests that, in the absence of credit constraints, higher inequality tends to increase the aggregate human capital stock and per capita income, under conditions which are supported empirically for advanced countries. Taking additionally into account that, due to borrowing constraints, higher inequality impedes human capital investment in poorer economies, this suggests a non-linear relationship between inequality and economic development.

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Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 30 (2008)
Issue (Month): 1 (March)
Pages: 19-42

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Handle: RePEc:eee:jmacro:v:30:y:2008:i:1:p:19-42

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Web page: http://www.elsevier.com/locate/inca/622617

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Cited by:
  1. Grossmann, Volker, 2008. "Risky human capital investment, income distribution, and macroeconomic dynamics," Journal of Macroeconomics, Elsevier, vol. 30(1), pages 19-42, March.
  2. Nikos Benos, 2004. "Education Policies and Economic Growth," University of Cyprus Working Papers in Economics 4-2004, University of Cyprus Department of Economics.
  3. Singh, Aarti, 2010. "Human capital risk in life-cycle economies," Journal of Monetary Economics, Elsevier, vol. 57(6), pages 729-738, September.
  4. Chen Lu & Mitsuyoshi Yanagihara, 2013. "Life Insurance, Human Capital Accumulation and Economic Growth," Australian Economic Papers, Wiley Blackwell, vol. 52(1), pages 52-60, 03.

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