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Growth and Inequality: Model Evaluation Based on an Estimation-Calibration Strategy

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  • Hyeok Jeong
  • Robert M. Townsend

Abstract

This paper evaluates two well-known models of growth with inequality that have explicit micro underpinnings related to household choice. With incomplete markets or transactions costs, wealth can constrain investment in business and the choice of occupation and also constrain the timing of entry into the formal financial sector. Using the Thai Socio-Economic Survey, we estimate the distribution of wealth and the key parameters that best fit cross-sectional data on household choices and wealth. We then simulate the model economies for two decades at the estimated initial wealth distribution and analyze whether the model economies at those micro-fit parameter estimates can explain the observed macro and sectoral aspects of income growth and inequality change. Both models capture important features of Thai reality. Anomalies and comparisons across the two distinct models yield specific suggestions for improved research on the micro foundations of growth and inequality.

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File URL: http://www.usc.edu/dept/LAS/economics/IEPR/Working%20Papers/IEPR_05.10_%5BJeong,Townsend%5D.pdf
File Function: First version, 2003
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Bibliographic Info

Paper provided by Institute of Economic Policy Research (IEPR) in its series IEPR Working Papers with number 05.10.

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Length: 63 pages
Date of creation: Sep 2003
Date of revision:
Handle: RePEc:scp:wpaper:05-10

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Related research

Keywords: Model Evaluation; Growth and Inequality; Wealth-Constrained Self-Selection;

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Cited by:
  1. Hyeok Jeong & Robert M. Townsend, 2005. "Sources of TFP Growth: Occupational Choice and Financial Deepening," IEPR Working Papers 05.28, Institute of Economic Policy Research (IEPR), revised May 2005.
  2. Satchi, Mathan & Temple, Jonathan, 2006. "Growth and Labour Markets in Developing Countries," CEPR Discussion Papers 5515, C.E.P.R. Discussion Papers.
  3. Kenichi Ueda & Robert M. Townsend, 2007. "Welfare Gains from Financial Liberalization," IMF Working Papers 07/154, International Monetary Fund.
  4. Demirguc-Kunt, Asli & Levine, Ross, 2009. "Finance and inequality : theory and evidence," Policy Research Working Paper Series 4967, The World Bank.
  5. Robert M. Townsend & Hyeok Jeong, 2004. "Discovering the Sources of TFP Growth: Occupation Choice, Capital Heterogeneity, and Financial Deepening," Econometric Society 2004 North American Summer Meetings 405, Econometric Society.
  6. Hyeok Jeong, 2005. "Assessment of Relationship between Growth and Inequality: Micro Evidence from Thailand," IEPR Working Papers 05.20, Institute of Economic Policy Research (IEPR).
  7. Francisco J. Buera & Yongseok Shin, 2013. "Financial Frictions and the Persistence of History: A Quantitative Exploration," Journal of Political Economy, University of Chicago Press, vol. 121(2), pages 221 - 272.
  8. Ugo Panizza, 2013. "Financial Development and Economic Growth: Known Knowns, Known Unknowns, and Unknown Unknowns," IHEID Working Papers 14-2013, Economics Section, The Graduate Institute of International Studies.
  9. Demirgüç-Kunt, A. & Beck, T.H.L. & Honohan, P., 2008. "Finance for all?: Policies and pitfalls in expanding access," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3508393, Tilburg University.
  10. Zhorin, Victor & Stef-Praun, Tiberiu, 2008. "Grid-enabled estimation of structural economic models," MPRA Paper 11384, University Library of Munich, Germany.
  11. Bandiera, Oriana & Burgess, Robin & Das, Narayan & Gulesci, Selim & Rasul, Imran & Sulaiman, Munshi, 2013. "Can Basic Entrepreneurship Transform the Economic Lives of the Poor?," IZA Discussion Papers 7386, Institute for the Study of Labor (IZA).
  12. Felipe Diniz, 2005. "Contructing A Broader Measure Of Welfare Incorporating The Access To Public Goods," Anais do XXXIII Encontro Nacional de Economia [Proceedings of the 33th Brazilian Economics Meeting] 045, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].

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