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Global poverty reduction and Pareto-improving redistribution

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  • Chu, Angus C.

Abstract

Can a transfer of wealth from the US to least developed countries be Pareto improving? We analyze this question in an open-economy innovation-driven growth model, in which the high-income (low-income) country produces innovative (homogenous) goods. We find that wealth redistribution to the low-income country simultaneously reduces global inequality and stimulates innovation through an increase in labor supply in the high-income country. Given that the market equilibrium of R&D-growth models is usually inefficient due to R&D externalities, the wealth redistribution may lead to a Pareto improvement, which occurs if the discount rate is sufficiently low or R&D productivity is sufficiently high.

Suggested Citation

  • Chu, Angus C., 2009. "Global poverty reduction and Pareto-improving redistribution," MPRA Paper 16809, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:16809
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    Cited by:

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    2. G. Candela & M. Castellani & R. Dieci, 2015. "The wise use of leisure time. A three-sector endogenous growth model with leisure services," Working Papers wp1010, Dipartimento Scienze Economiche, Universita' di Bologna.

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    More about this item

    Keywords

    innovation-driven growth; wealth redistribution; Pareto improvement;
    All these keywords.

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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