What Drives the Cross-Country Growth and Inequality Correlation?

Debasis Bandyopadhyay and Parantap Basu

No 210, Working Papers from Department of Economics, The University of Auckland

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 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-labor, barriers to knowledge spillovers, and the degree of redistribution determine the range of steady state equilibria. From a calibration experiment we report that a combination of a skill-intensive technology, low barriers to knowledge spillovers, and a high degree of redistribution characterize the group of countries with a positive growth-inequality relationship. A negative relationship arises in the group with the opposite characteristics.

Keywords: General Aggregative Models; Economics (search for similar items in EconPapers)
Date: 2002
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http://hdl.handle.net/2292/210

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Journal Article: What drives the cross-country growth and inequality correlation? (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:auc:wpaper:210

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