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Global poverty reduction and Pareto-improving redistribution

  • Chu, Angus C.

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.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 16809.

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Date of creation: Aug 2009
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Handle: RePEc:pra:mprapa:16809
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