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Effects of Income Inequality on Growth through Efficiency Improvement and Capital Accumulation

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Author Info
Yamamura, Eiji
Shin, Inyong

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Abstract

In the present paper, the inverted-U shape relationship between growth and inequality found in Chen(2003), is reexamined. We decompose productivity growth into efficiency improvement, capital accumulation and technological progress and then ascertain their determinants by employing a fixed effects and dynamic panel models. In particular, this paper focuses on the question of how economic inequality affects capital accumulation and efficiency improvement. Key findings are that inequality enhances efficiency improvement as well as capital accumulation and then undermines them as inequality widens. However, other factors such as human capital, openness, and government consumption have different effects on them.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 10220.

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Date of creation: 23 Apr 2008
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Handle: RePEc:pra:mprapa:10220

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Related research
Keywords: Inequality; Growth; Fixed effects;

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Find related papers by JEL classification:
E25 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
O15 - Economic Development, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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  2. Barro, Robert J, 2000. " Inequality and Growth in a Panel of Countries," Journal of Economic Growth, Springer, vol. 5(1), pages 5-32, March. [Downloadable!] (restricted)
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  7. Yamamura, Eiji & Shin, Inyong, 2008. "The benefit of efficiency improvement on growth and convergence: A study using Japan panel data," Economics Letters, Elsevier, vol. 99(1), pages 209-211, April. [Downloadable!] (restricted)
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  18. Banerjee, Abhijit V & Duflo, Esther, 2003. " Inequality and Growth: What Can the Data Say?," Journal of Economic Growth, Springer, vol. 8(3), pages 267-99, September. [Downloadable!] (restricted)
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  19. Jeffrey A. Frankel & David Romer, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June. [Downloadable!] (restricted)
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  21. Chen, Been-Lon, 2003. "An inverted-U relationship between inequality and long-run growth," Economics Letters, Elsevier, vol. 78(2), pages 205-212, February. [Downloadable!] (restricted)
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    Other versions:
  23. Eiji Yamamura & Inyong Shin, 2007. "Technological Change and Catch-up and Capital Deepening: Relative Contributions to Growth and Convergence: Comment," Economics Bulletin, Economics Bulletin, vol. 15(3), pages 1-8. [Downloadable!]
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