World Interest Rates, Inequality and Growth: an Empirical Analysis of the Galor-Zeira Model

Michele Battisti, Tamara Fioroni () and Andrea Lavezzi

Discussion Papers from Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy

Abstract: Following Galor and Zeira (1993), we study the effect of the world interest rate on inequality and growth for the period 1985-2005, char- acterized by falling world interest rates and cross-country income po- larization. We argue that the two phenomena are related on the basis of the following findings, which are in accordance with the predictions of the Galor and Zeira model: 1) a reduction of the world interest rates increases inequality in rich countries and decreases inequality in poor countries; 2) inequality has a negative (and significant) effect on hu- man capital accumulation in rich countries and a positive (but mostly not significant) effect in poor countries; 3) human capital positively affects GDP in both group of countries, in particular with a higher marginal effect in poor countries. The overall effect of these facts is polarization in the world income distribution.

Keywords: Inequality; Human Capital; Economic Growth; Multiple Equilibria; World Interest Rates. (search for similar items in EconPapers)
JEL-codes: C33 O15 O16 O47 (search for similar items in EconPapers)
Date: 2014-09-01
New Economics Papers: this item is included in nep-gro and nep-hrm
Note: ISSN 2039-1854
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:pie:dsedps:2014/184

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