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American Economic Development Since the Civil War or the Virtue of Education

  • Fabrice Murtin

This paper is the first empirical framework that explains the phenomenon of fast growth combined with the demographic transition occurring in the United States since 1860. I propose a structural model that unifies those events through the role of education: the key feature is that parental education determines simultaneously fertility, mortality and children's education, so that the accumulation of education from one generation to another explains both fast growth and the reduction of fertility and mortality rates. Using original data, the model is estimated and fits in a remarkable way income, the distribution of education and age pyramids. Moreover, some historical data on Blacks, assumed to constitute the bottom of the distribution of education, show that the model predicts correctly the joint distribution of fertility and education, and that of mortality and education. Comparisons with the PSID suggest that the intergenerational correlation of income is also well captured. Thus, this microfunded growth model based on human capital accumulation accounts for many traits of American economic development since 1860. In a second step, I investigate the long-run influence of income inequality on growth. Because children's human capital is a concave function of parental income, income inequality slows down the accumulation of human capital across generations and hence growth. Simulations show that this effect is large.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0765.

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Date of creation: Dec 2006
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Handle: RePEc:cep:cepdps:dp0765
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  1. Matthias Doepke, 2001. "Accounting for Fertility Decline During the Transition to Growth," UCLA Economics Working Papers 804, UCLA Department of Economics.
  2. David N. Weil & Oded Galor, 1999. "From Malthusian Stagnation to Modern Growth," American Economic Review, American Economic Association, vol. 89(2), pages 150-154, May.
  3. Robert Haveman & Barbara Wolfe, 1995. "The Determinants of Children's Attainments: A Review of Methods and Findings," Journal of Economic Literature, American Economic Association, vol. 33(4), pages 1829-1878, December.
  4. Moshe Hazan & Binyamin Berdugo, 2002. "Child Labour, Fertility, and Economic Growth," Economic Journal, Royal Economic Society, vol. 112(482), pages 810-828, October.
  5. Solon, Gary, 1992. "Intergenerational Income Mobility in the United States," American Economic Review, American Economic Association, vol. 82(3), pages 393-408, June.
  6. David de la Croix & Matthias Doepke, 2003. "Inequality and Growth: Why Differential Fertility Matters," American Economic Review, American Economic Association, vol. 93(4), pages 1091-1113, September.
  7. Robert J. Barro & Gary S. Becker, . "Fertility Choice in a Model of Economic Growth," University of Chicago - Population Research Center 88-8, Chicago - Population Research Center.
  8. Galor, Oded & Weil, David N, 1996. "The Gender Gap, Fertility, and Growth," American Economic Review, American Economic Association, vol. 86(3), pages 374-87, June.
  9. Galor, Oded & Weil, David, 1998. "Population, Technology and Growth: From the Malthusian Regime to the Demographic Transition," CEPR Discussion Papers 1981, C.E.P.R. Discussion Papers.
  10. Oded Galor & Omer Moav, 2004. "From Physical to Human Capital Accumulation: Inequality and the Process of Development," GE, Growth, Math methods 0410005, EconWPA.
  11. Matthias Doepke, 2002. "Child Mortality and Fertility Decline: Does the Barro-Becker Model Fit the Facts?," UCLA Economics Working Papers 824, UCLA Department of Economics.
  12. Galor, Oded & Zeira, Joseph, 1988. "Income Distribution and Macroeconomics," MPRA Paper 51644, University Library of Munich, Germany, revised 01 Sep 1989.
  13. Thomas Piketty, 1997. "The Dynamics of the Wealth Distribution and the Interest Rate with Credit Rationing," Review of Economic Studies, Oxford University Press, vol. 64(2), pages 173-189.
  14. Bourguignon, Francois, 1981. "Pareto Superiority of Unegalitarian Equilibria in Stiglitz' Model of Wealth Distribution with Convex Saving Function," Econometrica, Econometric Society, vol. 49(6), pages 1469-75, November.
  15. Oded Galor, 2006. "The Demographic Transition," Working Papers 2006-24, Brown University, Department of Economics.
  16. Claudia Goldin & Lawrence F. Katz, 2003. "The "Virtues" of the Past: Education in the First Hundred Years of the New Republic," NBER Working Papers 9958, National Bureau of Economic Research, Inc.
  17. Psacharopoulos, George & Patrinos, Harry Anthony, 2002. "Returns to investment in education : a further update," Policy Research Working Paper Series 2881, The World Bank.
  18. Barro, Robert J, 2000. "Inequality and Growth in a Panel of Countries," Journal of Economic Growth, Springer, vol. 5(1), pages 5-32, March.
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