What drives the cross-country growth and inequality correlation?

Basu, P.; Bandyopadhyay, D.

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.

Citation

Basu, P., & Bandyopadhyay, D. (2005). What drives the cross-country growth and inequality correlation?. Canadian Journal of Economics, 38(4), 1272-1297. https://doi.org/10.1111/j.0008-4085.2005.00325.x

• Journal Article Type: Article
• Publication Date: Nov 1, 2005
• Deposit Date: Apr 3, 2007
• Journal: Canadian Journal of Economics
• Print ISSN: 0008-4085
• Electronic ISSN: 1540-5982
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 38
• Issue: 4
• Pages: 1272-1297
• DOI: https://doi.org/10.1111/j.0008-4085.2005.00325.x
• Public URL: https://durham-repository.worktribe.com/output/1601215