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Global Poverty Reduction and Pareto-Improving Redistribution

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Author Info
Chu, Angus C.

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Abstract

Can a transfer of wealth from the US to the least developed countries be Pareto improving? We analyze this question in an open-economy R&D-based growth model, in which the high-income (low-income) country produces innovative (homogenous) goods. We find that wealth redistribution to the low-income country simultaneously reduces global inequality and increases growth through an increase in labor supply in the high-income country. Given that the market equilibrium of R&D-based growth models is usually inefficient due to R&D externalities, the wealth redistribution may lead to a Pareto improvement, which occurs if the discount rate is sufficiently low or R&D productivity is sufficiently high.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 16809.

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Date of creation: Oct 2009
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Handle: RePEc:pra:mprapa:16809

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Related research
Keywords: innovation-driven growth; Pareto-improving redistribution;

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Find related papers by JEL classification:
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives
F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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