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Economic development and intergenerational economic mobility

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Author Info
Murat F. Iyigun

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Abstract

This paper examines theoretically how economic growth affects intergenera­tional economic mobility. In the model developed in this paper, education is provided to the individuals free of cost, and admission to schools is competitive. The quantity of educational services available in any period depends on the total output of the economy in the same period. Individuals differ from each other in two respects. First, their innate mental abilities are determined by a stochastic process, and, second, their parents have different education levels. Individuals are admitted to schools based on their potential. An individual's potential is a function of her innate mental ability and her parent's education level. ; In this model, economic growth increases intergenerational economic mobility if and only if the effect of having an educated parent on an individual's poten­tial is not large. Moreover, if the effect of having an educated parent is not large, then there exists a unique steady state equilibrium and all economies will progress toward increased mobility. The model also shows that economic growth reduces the income difference between educated and uneducated labor if and only if the effect of having an educated parent on an individual's potential is not large. And, although population growth reduces intergenerational economic mobility, techno­logical progress increases it.

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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 524.

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Date of creation: 1995
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Handle: RePEc:fip:fedgif:524

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Related research
Keywords: Economic development;

References listed on IDEAS
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  1. Durlauf, S.N., 1992. "A Theory of Persistent Income Inequality," Papers 47, Stanford - Institute for Thoretical Economics.
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  2. Bénabou, Roland, 1994. "Education, Income Distribution, and Growth: The Local Connection," CEPR Discussion Papers 995, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  3. Galor, Oded & Zeira, Joseph, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Blackwell Publishing, vol. 60(1), pages 35-52, January. [Downloadable!] (restricted)
  4. Becker, Gary S & Tomes, Nigel, 1986. "Human Capital and the Rise and Fall of Families," Journal of Labor Economics, University of Chicago Press, vol. 4(3), pages S1-39, July. [Downloadable!] (restricted)
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  5. Loury, Glenn C, 1981. "Intergenerational Transfers and the Distribution of Earnings," Econometrica, Econometric Society, vol. 49(4), pages 843-67, June. [Downloadable!] (restricted)
  6. Galor, Oded & Tsiddon, Daniel, 1994. "Human Capital Distribution, Technological Progress, and Economic Growth," CEPR Discussion Papers 971, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  7. Torvik, Ragnar, 1993. " Talent, Growth and Income Distribution," Scandinavian Journal of Economics, Blackwell Publishing, vol. 95(4), pages 581-96, December.
  8. Becker, Gary S & Tomes, Nigel, 1979. "An Equilibrium Theory of the Distribution of Income and Intergenerational Mobility," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1153-89, December. [Downloadable!] (restricted)
  9. Benabou, Roland, 1993. "Workings of a City: Location, Education, and Production," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 619-52, August. [Downloadable!] (restricted)
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  10. Abhijit V. Banerjee & Andrew F. Newman, 1990. "Occupational Choice and the Process of Development," Discussion Papers 911, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
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