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Heterogeneity, Stratification and Growth

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  • Bénabou, Roland

Abstract

This paper examines how economic stratification affects inequality and growth over time. It studies economies where heterogenous agents interact through local public goods or externalities (school funding, neighbourhood effects) and economy-wide linkages (complementary skills, knowledge spillovers). It compares growth and welfare when families are stratified into homogeneous local communities and when they remain integrated. Segregation tends to minimize the losses from a given amount of heterogeneity, but integration reduces heterogeneity faster. Society may thus face an intertemporal trade-off: mixing leads to slower growth in the short run, but to higher output or even productivity growth in the long run. This trade-off occurs in particular when comparing local and national funding of education, which correspond to special cases of segregation and integration. More generally, the paper identifies the key parameters which determine which structure is more efficient over short and long horizons. Particularly important are the degrees of complementarity in local and in global interactions.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 815.

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Date of creation: Aug 1993
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Handle: RePEc:cpr:ceprdp:815

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Keywords: Education; Externalities; Growth; Human Capital; Inequality; Stratification;

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  1. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June.
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  12. Roland Benabou, 1991. "Workings of a City: Location, Education, and Production," NBER Technical Working Papers 0113, National Bureau of Economic Research, Inc.
  13. Durlauf, S.N., 1992. "A Theory of Persistent Income Inequality," Papers 47, Stanford - Institute for Thoretical Economics.
  14. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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