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One or Many Kuznets Curves? Short and Long Run Effects of the Impact of Skill-Biased Technological Change on Income Inequality

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Author Info

  • Grimalda, Gianluca

    () (University of Warwick)

  • Vivarelli, Marco

    () (Università Cattolica del Sacro Cuore)

Abstract

We draw on a dynamical two-sector model and on a calibration exercise to study the impact of a skill-biased technological shock on the growth path and income distribution of a developing economy. The model builds on the theoretical framework developed by Silverberg and Verspagen (1995) and on the idea of localised technological change (Atkinson and Stiglitz, 1969) with sector-level increasing returns to scale. We find that a scenario of catching-up to the high-growth steady state is predictable for those economies starting off with a high enough endowment of skilled workforce. During the transition phase, if the skill upgrade process for the workforce is relatively slow, the typical inverse-U Kuznets pattern emerges for income inequality in the long run. Small scale Kuznets curves, driven by sectoral business cycles, may also be detected in the short run. Conversely, economies initially suffering from significant skill shortages remain trapped in a low-growth steady state. Although the long-term trend is one of decreasing inequality, small-scale Kuznets curves may be detected even in this case, which may cause problems of observational equivalence between the two scenarios for the policy-maker. The underlying factors of inequality, and the evolution of a more comprehensive measure of inequality than the one normally used, are also analysed.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1223.

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Length: 42 pages
Date of creation: Jul 2004
Date of revision:
Publication status: published in: Journal of Evolutionary Economics, 2010, 20 (2), 265-306
Handle: RePEc:iza:izadps:dp1223

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Keywords: inequality; Kuznets curve; skill-biased technological change; catching-up;

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References

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  1. Antonelli Cristiano, 2003. "Localized technological change," Dipartimento di Economia "S. Cognetti de Martiis" LEI & BRICK - Laboratorio di economia dell'innovazione "Franco Momigliano", Bureau of Research in Innovation, Complexity and Knowledge, Collegio Carlo 200305, University of Turin.
  2. Mattias Lundberg & Lyn Squire, 2003. "The simultaneous evolution of growth and inequality," Economic Journal, Royal Economic Society, vol. 113(487), pages 326-344, 04.
  3. Berman, Eli & Machin, Stephen, 2000. "Skill-Based Technology Transfer around the World," Oxford Review of Economic Policy, Oxford University Press, vol. 16(3), pages 12-22, Autumn.
  4. Papanek, Gustav F. & Kyn, Oldrich, 1986. "The effect on income distribution of development, the growth rate and economic strategy," Journal of Development Economics, Elsevier, vol. 23(1), pages 55-65, September.
  5. Sanjaya Lall, . "The Employment Impact Of Globalisation In Developing Countries," QEH Working Papers qehwps93, Queen Elizabeth House, University of Oxford.
  6. Dollar, David & Kraay, Aart, 2001. "Trade, growth, and poverty," Policy Research Working Paper Series 2615, The World Bank.
  7. Mankiw, N Gregory & Romer, David & Weil, David N, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 407-37, May.
  8. Atkinson, Anthony B & Stiglitz, Joseph E, 1969. "A New View of Technological Change," Economic Journal, Royal Economic Society, vol. 79(315), pages 573-78, September.
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Cited by:
  1. Meschi, Elena & Vivarelli, Marco, 2007. "Globalization and Income Inequality," IZA Discussion Papers 2958, Institute for the Study of Labor (IZA).
  2. Gianluca Grimalda & Marco Vivarelli, 2010. "Is inequality the price to pay for higher growth in middle-income countries?," Journal of Evolutionary Economics, Springer, vol. 20(2), pages 265-306, April.
  3. Saccone Donatella, 2008. "Economic openness, skill demand and skill supply in three archetypes of developing countries: a theoretical and empirical investigation," Department of Economics Working Papers 200813, University of Turin.

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