The impact of Inequality on Economic Growth: Evidence for Mexico 1895-1994
The aim of the paper is to explore the influences of initial inequality on the long run distribution of wealth. The paper presents two mathematical models that analyse the occupational choice of individuals in the presence of capital constraints and risk in entrepreneurial activities. The models show that inequality and particularly polarization hinder economic growth. The higher the initial level of polarization is, the lower the long run aggregate wealth of the economy and the higher the long run polarization will be. The models are calibrated using numerical simulations. The implications of the models are assessed empirically using data on economic growth, and income distribution in Mexico, during the period 1895-1994, as well as the "Doing Business" databases of the World Bank. Policy-wise it is found that a more egalitarian wealth distribution and less poverty can be achieved through wealth redistribution policies and by improving the business climate. This can be done by reducing the cost of setting-up firms (technology,bureaucratic and administrative costs), introducing labour-market reforms encouraging the hiring of those typically excluded such as the poor, improving the access to credit markets by reducing the costs of creating and/or registering collateral and broadening the credit bureau coverage.
|Date of creation:||2007|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.ael.ethz.ch/|
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bénabou, Roland, 1996.
"Inequality and Growth,"
CEPR Discussion Papers
1450, C.E.P.R. Discussion Papers.
- Steven Stern, 1997. "Simulation-Based Estimation," Journal of Economic Literature, American Economic Association, vol. 35(4), pages 2006-2039, December.
- 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 274-98, April.
- Abhijit V. Banerjee & Andrew F. Newman, 1990. "Occupational Choice and the Process of Development," Discussion Papers 911, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Datt, Gaurav & Ravallion, Martin, 1992. "Growth and redistribution components of changes in poverty measures : A decomposition with applications to Brazil and India in the 1980s," Journal of Development Economics, Elsevier, vol. 38(2), pages 275-295, April.
- Wolfson, Michael C, 1994. "When Inequalities Diverge," American Economic Review, American Economic Association, vol. 84(2), pages 353-58, May.
- Ghatak, Maitreesh & Nien-Huei Jiang, Neville, 2002.
"A simple model of inequality, occupational choice, and development,"
Journal of Development Economics,
Elsevier, vol. 69(1), pages 205-226, October.
- Galor, Oded & Zeira, Joseph, 1993.
"Income Distribution and Macroeconomics,"
Review of Economic Studies,
Wiley Blackwell, vol. 60(1), pages 35-52, January.
- Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-66, May.
- Joseph Persky, 1992. "Retrospectives: Pareto's Law," Journal of Economic Perspectives, American Economic Association, vol. 6(2), pages 181-192, Spring.
- Dasgupta, Partha & Ray, Debraj, 1986. "Inequality as a Determinant of Malnutrition and Unemployment: Theory," Economic Journal, Royal Economic Society, vol. 96(384), pages 1011-34, December.
When requesting a correction, please mention this item's handle: RePEc:zbw:gdec07:6534. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics)
If references are entirely missing, you can add them using this form.