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On The Nature Of Income Inequality Across Nations

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  • Ferreira, Pedro Cavalcanti Gomes
  • Issler, João Victor
  • Pessoa, Samuel de Abreu

Abstract

In this paper, we investigate the nature of income inequality across nations by first estimating, testing, and distinguishing between two types of aggregate production functions: the extended neoclassical model and a mincerian formulation of schooling-returns to skills. Next, given our panel-data estimates, we proceed in decomposing the variance of the (log) level of output per-worker in 1985 into that of three distinct factors: productivity, human capital, and the dynamic incentives to accumulate capital. Finally, we classify a group of 95 countries according to their relative position (above or below average) for each of these factors. The picture that emerges from these last two exercises is one where countries grew in the past for different reasons, which should be considered for policy design. Although there is not a single-factor explanation for the difference in output per-worker across nations, it seems that productivity differences can explain a considerable portion of income inequality, followed second by dynamic inefficiencies and third by human capital accumulation.

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Bibliographic Info

Paper provided by FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil) in its series Economics Working Papers (Ensaios Economicos da EPGE) with number 370.

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Date of creation: 01 Mar 2000
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Handle: RePEc:fgv:epgewp:370

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  1. Nehru, Vikram & Dhareshwar, Ashok & DEC, 1994. "New estimates of total factor productivity growth for developing and industrial countries," Policy Research Working Paper Series, The World Bank 1313, The World Bank.
  2. Robert J. Barro & N. Gregory Mankiw & Xavier Sala-i-Martin, 1994. "Capital mobility in Neoclassical models of growth," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 82, Department of Economics and Business, Universitat Pompeu Fabra.
  3. Barro, R.J., 1989. "Economic Growth In A Cross Section Of Countries," RCER Working Papers, University of Rochester - Center for Economic Research (RCER) 201, University of Rochester - Center for Economic Research (RCER).
  4. William Easterly & Michael Kremer & Lant Pritchett & Lawrence H. Summers, 1993. "Good Policy or Good Luck? Country Growth Performance and Temporary Shocks," NBER Working Papers, National Bureau of Economic Research, Inc 4474, National Bureau of Economic Research, Inc.
  5. Ellen R. McGrattan, 1991. "The macroeconomic effects of distortionary taxation," Discussion Paper / Institute for Empirical Macroeconomics, Federal Reserve Bank of Minneapolis 37, Federal Reserve Bank of Minneapolis.
  6. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780195060119, October.
  7. N. Gregory Mankiw & David Romer & David N. Weil, 1990. "A Contribution to the Empirics of Economic Growth," NBER Working Papers, National Bureau of Economic Research, Inc 3541, National Bureau of Economic Research, Inc.
  8. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 1997. "The poverty of nations: a quantitative exploration," Staff Report, Federal Reserve Bank of Minneapolis 204, Federal Reserve Bank of Minneapolis.
  9. Barro, Robert J & Lee, Jong Wha, 1996. "International Measures of Schooling Years and Schooling Quality," American Economic Review, American Economic Association, American Economic Association, vol. 86(2), pages 218-23, May.
  10. Prescott, Edward C, 1998. "Needed: A Theory of Total Factor Productivity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 525-51, August.
  11. Mark Bils & Peter J. Klenow, 1998. "Does Schooling Cause Growth or the Other Way Around?," NBER Working Papers, National Bureau of Economic Research, Inc 6393, National Bureau of Economic Research, Inc.
  12. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output Per Worker Than Others?," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 114(1), pages 83-116, February.
  13. Psacharopoulos, George, 1994. "Returns to investment in education: A global update," World Development, Elsevier, Elsevier, vol. 22(9), pages 1325-1343, September.
  14. Islam, Nazrul, 1995. "Growth Empirics: A Panel Data Approach," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 110(4), pages 1127-70, November.
  15. Gregory Mankiw, 1995. "The Growth of Nations," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 275-326.
  16. Douglas Gollin, 2001. "Getting Income Shares Right," Department of Economics Working Papers, Department of Economics, Williams College 2001-11, Department of Economics, Williams College.
  17. Parente, Stephen L & Prescott, Edward C, 1994. "Barriers to Technology Adoption and Development," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 102(2), pages 298-321, April.
  18. Willis, Robert J., 1987. "Wage determinants: A survey and reinterpretation of human capital earnings functions," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 10, pages 525-602 Elsevier.
  19. Peter Klenow & Andrés Rodríguez-Clare, 1997. "The Neoclassical Revival in Growth Economics: Has It Gone Too Far?," NBER Chapters, National Bureau of Economic Research, Inc, in: NBER Macroeconomics Annual 1997, Volume 12, pages 73-114 National Bureau of Economic Research, Inc.
  20. Benhabib, Jess & Spiegel, Mark M., 1994. "The role of human capital in economic development evidence from aggregate cross-country data," Journal of Monetary Economics, Elsevier, Elsevier, vol. 34(2), pages 143-173, October.
  21. Lucas, Robert E, Jr, 1990. "Why Doesn't Capital Flow from Rich to Poor Countries?," American Economic Review, American Economic Association, American Economic Association, vol. 80(2), pages 92-96, May.
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Cited by:
  1. Pessoa, Samuel de Abreu, 1999. "Um Modelo de Acumulação de Capital Físico e Humano: Um Diálogo com a Economia do Trabalho," Economics Working Papers (Ensaios Economicos da EPGE), FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil) 345, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  2. Jess Enrique Morales Pi?ro, 2004. "Labour Market Frictions, Social Policies, and Barriers to Technology Adoption," UFAE and IAE Working Papers, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) 633.04, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  3. Milton Barossi-Filho & Ricardo Gonçalves Silva & Eliezer Martins Diniz, 2005. "The empirics of the Solow growth model: Long-term evidence," Journal of Applied Economics, Universidad del CEMA, Universidad del CEMA, vol. 0, pages 31-51, May.
  4. Pedro Cavalcanti Ferreira & Osmani Teixeira de Carvalho Guillén, 2002. "Estrutura Competitiva, Produtividade Industrial e Liberação Comercial no Brasil," Working Papers Series, Central Bank of Brazil, Research Department 44, Central Bank of Brazil, Research Department.

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