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What drives the cross-country growth and inequality correlation?

Debasis Bandyopadhyay and Parantap Basu

Canadian Journal of Economics, 2005, vol. 38, issue 4, 1272-1297

Abstract: We present a neo-classical model that explores the determinants of growth-inequality correlation and attempts to reconcile the seemingly conflicting evidence on the nature of the growth-inequality relationship. The initial distribution of human capital determines the long-run income distribution and the growth rate by influencing the occupational choice of the agents. The steady-state proportion of adults that innovates and updates human capital is path dependent. The output elasticity of skilled-labour, barriers to knowledge spillovers, and the degree of redistribution determine the range of steady-state equilibria. From a calibration experiment we report that a skill-intensive technology, low barriers to knowledge spillovers, and high degrees of redistribution characterize the industrial countries with a positive growth-inequality correlation. A negative correlation between growth and inequality arises for the group of non-industrial countries with the opposite characteristics.

JEL-codes: E1 O4 (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (8)

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Journal Article: What drives the cross‐country growth and inequality correlation? (2005) Downloads
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