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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. N. Gregory Mankiw, 1995. "The Growth of Nations," Harvard Institute of Economic Research Working Papers 1732, Harvard - Institute of Economic Research.
  2. N. Gregory Mankiw & David Romer & David N. Weil, 1992. "A Contribution to the Empirics of Economic Growth," NBER Working Papers 3541, National Bureau of Economic Research, Inc.
  3. Barro, R. & Mankiw, G., 1992. "Capital Mobility in Neoclassical Models of Growth," Harvard Institute of Economic Research Working Papers 1615, Harvard - Institute of Economic Research.
  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 4474, National Bureau of Economic Research, Inc.
  5. 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, vol. 34(2), pages 143-173, October.
  6. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119.
  7. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 458-474, April.
  8. Lucas, Robert E, Jr, 1990. "Why Doesn't Capital Flow from Rich to Poor Countries?," American Economic Review, American Economic Association, vol. 80(2), pages 92-96, May.
  9. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," NBER Working Papers 3120, National Bureau of Economic Research, Inc.
  10. 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, vol. 114(1), pages 83-116, February.
  11. Psacharopoulos, George, 1994. "Returns to investment in education: A global update," World Development, Elsevier, vol. 22(9), pages 1325-1343, September.
  12. Barro, Robert J & Lee, Jong Wha, 1996. "International Measures of Schooling Years and Schooling Quality," American Economic Review, American Economic Association, vol. 86(2), pages 218-23, May.
  13. Willis, Robert J., 1987. "Wage determinants: A survey and reinterpretation of human capital earnings functions," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 10, pages 525-602 Elsevier.
  14. Parente, Stephen L & Prescott, Edward C, 1994. "Barriers to Technology Adoption and Development," Journal of Political Economy, University of Chicago Press, vol. 102(2), pages 298-321, April.
  15. 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, vol. 39(3), pages 525-51, August.
  16. Peter Klenow & Andrés Rodríguez-Clare, 1997. "The Neoclassical Revival in Growth Economics: Has It Gone Too Far?," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 73-114 National Bureau of Economic Research, Inc.
  17. McGrattan, Ellen R., 1994. "The macroeconomic effects of distortionary taxation," Journal of Monetary Economics, Elsevier, vol. 33(3), pages 573-601, June.
  18. Mark Bils & Peter J. Klenow, 1998. "Does Schooling Cause Growth or the Other Way Around?," NBER Working Papers 6393, National Bureau of Economic Research, Inc.
  19. Nehru, Vikram & Dhareshwar, Ashok & DEC, 1994. "New estimates of total factor productivity growth for developing and industrial countries," Policy Research Working Paper Series 1313, The World Bank.
  20. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 1996. "The Poverty of Nations: A Quantitative Exploration," NBER Working Papers 5414, National Bureau of Economic Research, Inc.
  21. Islam, Nazrul, 1995. "Growth Empirics: A Panel Data Approach," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 1127-70, November.
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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) 345, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  2. Pedro Cavalcanti Ferreira & Osmani Teixeira de Carvalho Guillén, 2002. "Estrutura Competitiva, Produtividade Industrial e Liberação Comercial no Brasil," Working Papers Series 44, Central Bank of Brazil, Research Department.
  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, vol. 0, pages 31-51, May.
  4. Jess Enrique Morales Pi?ro, 2004. "Labour Market Frictions, Social Policies, and Barriers to Technology Adoption," UFAE and IAE Working Papers 633.04, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).

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