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Economic development and intergenerational economic mobility

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  • Murat F. Iyigun

Abstract

This paper examines theoretically how economic growth affects intergenera­tional economic mobility. In the model developed in this paper, education is provided to the individuals free of cost, and admission to schools is competitive. The quantity of educational services available in any period depends on the total output of the economy in the same period. Individuals differ from each other in two respects. First, their innate mental abilities are determined by a stochastic process, and, second, their parents have different education levels. Individuals are admitted to schools based on their potential. An individual's potential is a function of her innate mental ability and her parent's education level. ; In this model, economic growth increases intergenerational economic mobility if and only if the effect of having an educated parent on an individual's poten­tial is not large. Moreover, if the effect of having an educated parent is not large, then there exists a unique steady state equilibrium and all economies will progress toward increased mobility. The model also shows that economic growth reduces the income difference between educated and uneducated labor if and only if the effect of having an educated parent on an individual's potential is not large. And, although population growth reduces intergenerational economic mobility, techno­logical progress increases it.

Suggested Citation

  • Murat F. Iyigun, 1995. "Economic development and intergenerational economic mobility," International Finance Discussion Papers 524, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgif:524
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    References listed on IDEAS

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    1. George Psacharopoulos, 1985. "Returns to Education: A Further International Update and Implications," Journal of Human Resources, University of Wisconsin Press, vol. 20(4), pages 583-604.
    2. Oded Galor & Joseph Zeira, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Oxford University Press, vol. 60(1), pages 35-52.
    3. Torvik, Ragnar, 1993. " Talent, Growth and Income Distribution," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(4), pages 581-596, December.
    4. Gary S. Becker & Nigel Tomes, 1994. "Human Capital and the Rise and Fall of Families," NBER Chapters,in: Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education (3rd Edition), pages 257-298 National Bureau of Economic Research, Inc.
    5. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-298, April.
    6. Roland Benabou, 1994. "Education, Income Distribution and Growth: The Local Connection," NBER Working Papers 4798, National Bureau of Economic Research, Inc.
    7. Loury, Glenn C, 1981. "Intergenerational Transfers and the Distribution of Earnings," Econometrica, Econometric Society, vol. 49(4), pages 843-867, June.
    8. Galor, Oded & Tsiddon, Daniel, 1994. "Human Capital Distribution, Technological Progress, and Economic Growth," CEPR Discussion Papers 971, C.E.P.R. Discussion Papers.
    9. Becker, Gary S & Tomes, Nigel, 1979. "An Equilibrium Theory of the Distribution of Income and Intergenerational Mobility," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1153-1189, December.
    10. Durlauf, Steven N, 1996. "A Theory of Persistent Income Inequality," Journal of Economic Growth, Springer, vol. 1(1), pages 75-93, March.
    11. Roland Benabou, 1993. "Workings of a City: Location, Education, and Production," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 619-652.
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    Cited by:

    1. Iyigun, Murat, 2012. "Are We There Yet? Time for Checks and Balances on New Institutionalism," IZA Discussion Papers 6934, Institute for the Study of Labor (IZA).
    2. Chu, Luke Yu-Wei & Lin, Ming-Jen, 2016. "Economic development and intergenerational earnings mobility: Evidence from Taiwan," Working Paper Series 5272, Victoria University of Wellington, School of Economics and Finance.

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    Keywords

    Economic development;

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