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Inequality, Human Capital and Development: Making the Theory Face the Facts

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  • Papageorgiou, Chris
  • Razak, Nor Azam Abdul

Abstract

Recent theoretical contributions assert that income inequality impacts negatively human capital accumulation, and consequently long-run growth. Galor and Zeira (1993) show that such a relationship works primarily through financial constraints, while de la Croix and Doepke (2003) demonstrate that the relationship could also work via differential fertility between poor and rich. In this paper, we first test the inequality-human capital-output hypothesis in a sample of 46 countries for the period 1970—2000. In the baseline estimation specification and various robustness checks, we obtain results that lend strong support to this relationship. Second, we examine which of the two mechanisms, finds more support in the data. and show evidence in favor of the differential fertility mechanism.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 18973.

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Date of creation: 30 Nov 2009
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Handle: RePEc:pra:mprapa:18973

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Keywords: Income inequality; financial constraints; fertility differentials; human capital; economic growth;

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  1. Climent, Amparo Castello & Rafael Domenech, 2003. "Human Capital Inequality, Life Expectancy and Economic Growth," Royal Economic Society Annual Conference 2003, Royal Economic Society 46, Royal Economic Society.
  2. Robert J. Barro & Jong-Wha Lee, 2000. "International Data on Educational Attainment Updates and Implications," NBER Working Papers, National Bureau of Economic Research, Inc 7911, National Bureau of Economic Research, Inc.
  3. Durlauf,S.N. & Johnson,P.A. & Temple,J.R.W., 2004. "Growth econometrics," Working papers, Wisconsin Madison - Social Systems 18, Wisconsin Madison - Social Systems.
  4. Francesco Caselli & Wilbur John Coleman II, 2006. "The World Technology Frontier," American Economic Review, American Economic Association, American Economic Association, vol. 96(3), pages 499-522, June.
  5. Clarke, George R. G., 1995. "More evidence on income distribution and growth," Journal of Development Economics, Elsevier, Elsevier, vol. 47(2), pages 403-427, August.
  6. Rodrik, Dani & Alesina, Alberto, 1994. "Distributive Politics and Economic Growth," Scholarly Articles, Harvard University Department of Economics 4551798, Harvard University Department of Economics.
  7. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, American Economic Association, vol. 84(3), pages 600-621, June.
  8. Amparo Castello & Rafael Domenech, 2002. "Human Capital Inequality and Economic Growth: Some New Evidence," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 112(478), pages C187-C200, March.
  9. Li, Hongyi & Zou, Heng-fu, 1998. "Income Inequality Is Not Harmful for Growth: Theory and Evidence," Review of Development Economics, Wiley Blackwell, Wiley Blackwell, vol. 2(3), pages 318-34, October.
  10. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, Elsevier, vol. 22(1), pages 3-42, July.
  11. Chris Papageorgiou & Fidel Pérez Sebastián & John Duffy, 2002. "Capital-Skill Complementarity? Evidence From A Panel Of Countries," Working Papers. Serie AD, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) 2002-09, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  12. Kristin J. Forbes, 2000. "A Reassessment of the Relationship between Inequality and Growth," American Economic Review, American Economic Association, American Economic Association, vol. 90(4), pages 869-887, September.
  13. Sylwester, Kevin, 2000. "Income inequality, education expenditures, and growth," Journal of Development Economics, Elsevier, Elsevier, vol. 63(2), pages 379-398, December.
  14. Galor, Oded & Zeira, Joseph, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 60(1), pages 35-52, January.
  15. Kremer, Michael & Chen, Daniel L, 2002. " Income Distribution Dynamics with Endogenous Fertility," Journal of Economic Growth, Springer, Springer, vol. 7(3), pages 227-58, September.
  16. Amparo Castelló-Climent, 2004. "A Reassessment Of The Relationship Between Inequality And Growth: What Human Capital Inequality Data Say?," Working Papers. Serie EC, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) 2004-15, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  17. Omer Moav, 2005. "Cheap Children and the Persistence of Poverty," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 115(500), pages 88-110, 01.
  18. Deininger, Klaus & Squire, Lyn, 1998. "New ways of looking at old issues: inequality and growth," Journal of Development Economics, Elsevier, Elsevier, vol. 57(2), pages 259-287.
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Cited by:
  1. Jun, Bogang & Hwang, Won-Sik, 2012. "Financial Hurdles for Human Capital Accumulation: Revisiting the Galor-Zeira Model," MPRA Paper, University Library of Munich, Germany 46317, University Library of Munich, Germany.
  2. Jun, Bogang, 2012. "Non-Financial Hurdles for Human Capital Accumulation: Landownership in Korea under Japanese Rule," MPRA Paper, University Library of Munich, Germany 43172, University Library of Munich, Germany.

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