Economics at your fingertips  

On optimal long-term relationship between TFP, institutions, and income inequality under embodied technical progress

Raul Fuentes, Tapas Mishra (), Javier Scavia and Mamata Parhi

Structural Change and Economic Dynamics, 2014, vol. 31, issue C, 89-100

Abstract: We develop a simple optimal catch-up model under embodiment to study the potential long term dynamic relationship between total factor productivity (TFP), institutional quality, and income inequality in the context of a developing economy. Assuming a proactive role of institution in the persistence of TFP and minimum inequality spread for social optimum, we quantify the extent to which embodiment characteristics determine the long-term dynamics among these factors. It is shown that the amelioration (deterioration) of institutional quality influences skilled labour mobility across sectors (in developing economies) thereby decreasing (increasing) long term income inequality. Long run scenarios are built using our model in which the production sophistication of the economy under embodiment is shown to be compatible with both better institutions and less income inequality. Quantile regression results for a sample of 27 developing countries over 1990–2010 provide broad support to the theoretical predictions. In particular, it is found that – along the distribution path of embodied technical progress – there is heterogeneous response of productivity growth to the inequality spread and innovation intensity. Our results have interesting policy implications.

Keywords: Embodied technical change; Inequality; Development; Institutional quality (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

DOI: 10.1016/j.strueco.2014.08.003

Access Statistics for this article

Structural Change and Economic Dynamics is currently edited by F. Duchin, H. Hagemann, M. Landesmann, R. Scazzieri, A. Steenge and B. Verspagen

More articles in Structural Change and Economic Dynamics from Elsevier
Bibliographic data for series maintained by Haili He ().

Page updated 2020-07-08
Handle: RePEc:eee:streco:v:31:y:2014:i:c:p:89-100