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Inequality, Human Capital and Development: Making the Theory Face the Facts

  • Papageorgiou, Chris
  • Razak, Nor Azam Abdul

Recent theoretical contributions assert that income inequality impacts negatively human capital accumulation, and consequently long-run growth. Galor and Zeira (1993) show that such a relationship works primarily through financial constraints, while de la Croix and Doepke (2003) demonstrate that the relationship could also work via differential fertility between poor and rich. In this paper, we first test the inequality-human capital-output hypothesis in a sample of 46 countries for the period 1970—2000. In the baseline estimation specification and various robustness checks, we obtain results that lend strong support to this relationship. Second, we examine which of the two mechanisms, finds more support in the data. and show evidence in favor of the differential fertility mechanism.

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File URL: https://mpra.ub.uni-muenchen.de/18973/1/MPRA_paper_18973.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 18973.

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Date of creation: 30 Nov 2009
Handle: RePEc:pra:mprapa:18973
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  1. Clarke, George R. G., 1992. "More evidence on income distribution and growth," Policy Research Working Paper Series 1064, The World Bank.
  2. Moav, Omer, 2001. "Cheap Children and the Persistence of Poverty," CEPR Discussion Papers 3059, C.E.P.R. Discussion Papers.
  3. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June.
  4. Caselli, Francesco & Coleman II, Wilbur John, 2000. "The World Technology Frontier," CEPR Discussion Papers 2584, C.E.P.R. Discussion Papers.
  5. Amparo Castelló-Climent, 2004. "A Reassessment Of The Relationship Between Inequality And Growth: What Human Capital Inequality Data Say?," Working Papers. Serie EC 2004-15, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  6. Kremer, Michael & Chen, Daniel L, 2002. "Income Distribution Dynamics with Endogenous Fertility," Journal of Economic Growth, Springer, vol. 7(3), pages 227-258, September.
  7. Oded Galor & Joseph Zeira, 2013. "Income Distribution and Macroeconomics," Working Papers 2013-12, Brown University, Department of Economics.
  8. Li, Hongyi & Zou, Heng-fu, 1998. "Income Inequality Is Not Harmful for Growth: Theory and Evidence," Review of Development Economics, Wiley Blackwell, vol. 2(3), pages 318-34, October.
  9. Durlauf, Steven N. & Johnson, Paul A. & Temple, Jonathan R.W., 2005. "Growth Econometrics," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 8, pages 555-677 Elsevier.
  10. Amparo Castelló-Climent & Rafael Doménech, 2008. "Human Capital Inequality, Life Expectancy And Economic Growth," Economic Journal, Royal Economic Society, vol. 118(528), pages 653-677, 04.
  11. Alberto Alesina & Dani Rodrik, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 465-490.
  12. Deininger, Klaus & Squire, Lyn, 1998. "New ways of looking at old issues: inequality and growth," Journal of Development Economics, Elsevier, vol. 57(2), pages 259-287.
  13. Barro, Robert J & Lee, Jong-Wha, 2001. "International Data on Educational Attainment: Updates and Implications," Oxford Economic Papers, Oxford University Press, vol. 53(3), pages 541-63, July.
  14. Sylwester, Kevin, 2000. "Income inequality, education expenditures, and growth," Journal of Development Economics, Elsevier, vol. 63(2), pages 379-398, December.
  15. repec:lsu:lsuwpp:2003-12 is not listed on IDEAS
  16. Amparo Castello & Rafael Domenech, 2002. "Human Capital Inequality and Economic Growth: Some New Evidence," Economic Journal, Royal Economic Society, vol. 112(478), pages C187-C200, March.
  17. Alberto Alesina & Dani Rodrik, 1991. "Distributive Politics and Economic Growth," NBER Working Papers 3668, National Bureau of Economic Research, Inc.
  18. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  19. Kristin J. Forbes, 2000. "A Reassessment of the Relationship between Inequality and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 869-887, September.
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