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Growth and inequality in a small open economy

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  • Chen, Yu-chin
  • Turnovsky, Stephen J.

Abstract

This paper employs an endogenous growth model to analyze the growth and inequality relation for a small open economy where agents differ in their initial endowments of capital stock and international bond-holdings. We analyze the impacts of different structural shocks through their effects on agents' relative wealth and their labor supply decisions. Both theoretical analysis and numerical simulations demonstrate that openness - access to an international capital market - enriches the growth-inequality relations from those of the corresponding closed economy. Specifically, we show that the growth and distributional consequences of structural shocks depend crucially on whether the underlying heterogeneity originates with the initial endowment of domestic capital or foreign bonds.

Suggested Citation

  • Chen, Yu-chin & Turnovsky, Stephen J., 2010. "Growth and inequality in a small open economy," Journal of Macroeconomics, Elsevier, vol. 32(2), pages 497-514, June.
    • Handle: RePEc:eee:jmacro:v:32:y:2010:i:2:p:497-514
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    2. Chu, Angus C. & Peng, Shin-Kun, 2011. "International intellectual property rights: Effects on growth, welfare and income inequality," Journal of Macroeconomics, Elsevier, vol. 33(2), pages 276-287, June.
    3. Masakazu Emoto & Tamotsu Nakamura, 2021. "Intertemporal elasticity of substitution and the transitional dynamics and steady state of wealth distribution," Discussion Papers 2101, Graduate School of Economics, Kobe University.
    4. G. C. Lim & Paul D. McNelis, 2014. "Income Inequality, Trade and Financial Openness," Melbourne Institute Working Paper Series wp2014n07, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    5. Jung, Jae Wook & Kim, Kyunghun, 2021. "Financial Market Integration and Income Inequality," East Asian Economic Review, Korea Institute for International Economic Policy, vol. 25(2), pages 175-203, June.
    6. Lim, G.C. & McNelis, Paul D., 2016. "Income growth and inequality: The threshold effects of trade and financial openness," Economic Modelling, Elsevier, vol. 58(C), pages 403-412.

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