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Inequality and Growth: The Dual Role of Human Capital in Development

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Author Info
Theo Eicher ()
Cecilia Garcia-Penalosa

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Abstract

To examine how human capital accumulation influences both economic growth and income inequality, we carefully endogenize the demand and supply of skills. We explicitly introduce the costs and externalities in education, and examine how both relate to learning-by-doing and R&D intensity. In addition, we endogenize the determinants of the skill-bias of labor demand: the complementarity between technology and skilled and unskilled labor. Our results identify parameters that are central to the evolution of inequality during the development process. We characterise development thresholds when countries switch endogenously from pure learning to directed R&D, and we show that technical change can generate multiple steady states that are consistent with the cross-country data on inequality and skill-premia.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 355.

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Date of creation: 2000
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Handle: RePEc:ces:ceswps:_355

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Related research
Keywords: Human capital; wage inequality; biased technical change; threshold externalities;

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Find related papers by JEL classification:
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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    Other versions:
  2. Bourguignon, Francois & Morrisson, Christian, 1998. "Inequality and development: the role of dualism," Journal of Development Economics, Elsevier, vol. 57(2), pages 233-257. [Downloadable!] (restricted)
    Other versions:
  3. Breen, R. & Garcia-Penalosa, C., 1999. "Income Inequality and Macroeconomic Volatility: an Empirical Investigation," Economics Papers 1999-w20, Economics Group, Nuffield College, University of Oxford.
    Other versions:
  4. Alesina, Alberto & Perotti, Roberto, 1995. "Taxation and redistribution in an open economy," European Economic Review, Elsevier, vol. 39(5), pages 961-979, May. [Downloadable!] (restricted)
  5. Galor, Oded & Tsiddon, Daniel, 1996. "Income Distribution and Growth: The Kuznets Hypothesis Revisited," Economica, London School of Economics and Political Science, vol. 63(250), pages S103-17, Suppl.. [Downloadable!] (restricted)
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  11. Azariadis, Costas & Drazen, Allan, 1990. "Threshold Externalities in Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 501-26, May. [Downloadable!] (restricted)
  12. Philippe Aghion & Eve Caroli & Cecilia Garcia-Penalosa, 1999. "Inequality and Economic Growth: The Perspective of the New Growth Theories," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1615-1660, December. [Downloadable!] (restricted)
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  13. Benabou, Roland, 1996. "Equity and Efficiency in Human Capital Investment: The Local Connection," Review of Economic Studies, Blackwell Publishing, vol. 63(2), pages 237-64, April. [Downloadable!] (restricted)
  14. Bartel, Ann P & Lichtenberg, Frank R, 1987. "The Comparative Advantage of Educated Workers in Implementing New Technology," The Review of Economics and Statistics, MIT Press, vol. 69(1), pages 1-11, February. [Downloadable!] (restricted)
  15. Alesina, Alberto & Rodrik, Dani, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 465-90, May. [Downloadable!] (restricted)
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  16. Breen, R. & Garcia-Penalosa, C., 1999. "Income Inequality and Macroeconomic Volatility: an Empirical Investigation," G.R.E.Q.A.M. 99b11, Universite Aix-Marseille III.
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  19. Daron Acemoglu, 1999. "Patterns of Skill Premia," NBER Working Papers 7018, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  20. Torsten Persson & Guido Tabellini, 1991. "Is Inequality Harmful for Growth? Theory and Evidence," NBER Working Papers 3599, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  21. Perotti, Roberto, 1993. "Political Equilibrium, Income Distribution, and Growth," Review of Economic Studies, Blackwell Publishing, vol. 60(4), pages 755-76, October. [Downloadable!] (restricted)
  22. Redding, Stephen, 1996. "The Low-Skill, Low-Quality Trap: Strategic Complementarities between Human Capital and R&D," Economic Journal, Royal Economic Society, vol. 106(435), pages 458-70, March. [Downloadable!] (restricted)
  23. Benabou, Roland, 1996. "Heterogeneity, Stratification, and Growth: Macroeconomic Implications of Community Structure and School Finance," American Economic Review, American Economic Association, vol. 86(3), pages 584-609, June. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Heshmati, Almas, 2004. "Inequalities and Their Measurement," IZA Discussion Papers 1219, Institute for the Study of Labor (IZA). [Downloadable!]
  2. Anneli Kaasa, 2003. "Factors Influencing Income Inequality In Transition Economies," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 18, Faculty of Economics and Business Administration, University of Tartu (Estonia). [Downloadable!]
  3. Patricia Crifo, 2008. "Skill Supply and Biased technical change," Post-Print hal-00243031_v1, HAL. [Downloadable!]
    Other versions:
  4. Redding, Stephen J & Schott, Peter, 2003. "Distance, Skill Deepening and Development: Will Peripheral Countries Ever Get Rich?," CEPR Discussion Papers 3739, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  5. Andres Rodriguez-Pose & Vasileios Tselios, 2006. "Education and Income Inequality in the Regions of the European Union," ERSA conference papers ersa06p370, European Regional Science Association. [Downloadable!]
    Other versions:
  6. Heshmati, Almas, 2004. "The World Distribution of Income and Income Inequality," IZA Discussion Papers 1267, Institute for the Study of Labor (IZA). [Downloadable!]
  7. Andrea Vindigni, 2002. "Income Distribution and Skilled Biased Technological Change," Working Papers 843, Princeton University, Department of Economics, Industrial Relations Section.. [Downloadable!]
  8. Cecilia Garcia-Penalosa & Campbell leith & Chol-Won Li, 2001. "Wage Inequality and the Effort Incentive Effects of Technical Progress," Working Papers 2001_14, Department of Economics, University of Glasgow. [Downloadable!]
  9. Hyun Park, 2006. "Expenditure Composition and Distortionary Tax for Equitable Economic Growth," IMF Working Papers 06/165, International Monetary Fund. [Downloadable!]
  10. Mamoon, Dawood, 2005. "Education for all is central to Higher Education Reforms in Developing Countries," MPRA Paper 2696, University Library of Munich, Germany. [Downloadable!]
  11. Heshmati, Almas, 2004. "Growth, Inequality and Poverty Relationships," IZA Discussion Papers 1338, Institute for the Study of Labor (IZA). [Downloadable!]
  12. Mamoon, Dawood & Murshed, S. Mansoob, 2007. "The education bias of 'trade liberalization' and wage inequality in developing countries," Working Papers - General Series 443, Institute of Social Studies. [Downloadable!]
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