Inequality and the Process of...
Transcript of Inequality and the Process of...
![Page 1: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/1.jpg)
Inequality and the Process of Development
Oded Galor
July 9, 2015
Oded Galor Inequality and Growth July 9, 2015 1 / 1
![Page 2: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/2.jpg)
From the Classical to the Modern Perspective The Classical Paradigm
The Classical Theory
Inequality is beneficial for growth (in the post-industrialization stage)
Keynes (1920), Kaldor (1957)
The marginal propensity to save increases with income
Inequality channels resources towards individuals whose marginal propensity
to save is higher
=⇒ increases aggregate savings & capital accumulation
=⇒ enhances the development process
Oded Galor Inequality and Growth July 9, 2015 2 / 1
![Page 3: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/3.jpg)
From the Classical to the Modern Perspective The Classical Paradigm
The Classical Theory
Inequality is beneficial for growth (in the post-industrialization stage)
Keynes (1920), Kaldor (1957)
The marginal propensity to save increases with income
Inequality channels resources towards individuals whose marginal propensity
to save is higher
=⇒ increases aggregate savings & capital accumulation
=⇒ enhances the development process
Oded Galor Inequality and Growth July 9, 2015 2 / 1
![Page 4: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/4.jpg)
From the Classical to the Modern Perspective The Classical Paradigm
The Classical Theory
Inequality is beneficial for growth (in the post-industrialization stage)
Keynes (1920), Kaldor (1957)
The marginal propensity to save increases with income
Inequality channels resources towards individuals whose marginal propensity
to save is higher
=⇒ increases aggregate savings & capital accumulation
=⇒ enhances the development process
Oded Galor Inequality and Growth July 9, 2015 2 / 1
![Page 5: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/5.jpg)
From the Classical to the Modern Perspective The Classical Paradigm
The Classical Theory
Inequality is beneficial for growth (in the post-industrialization stage)
Keynes (1920), Kaldor (1957)
The marginal propensity to save increases with income
Inequality channels resources towards individuals whose marginal propensity
to save is higher
=⇒ increases aggregate savings & capital accumulation
=⇒ enhances the development process
Oded Galor Inequality and Growth July 9, 2015 2 / 1
![Page 6: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/6.jpg)
From the Classical to the Modern Perspective The Classical Paradigm
The Classical Theory
Inequality is beneficial for growth (in the post-industrialization stage)
Keynes (1920), Kaldor (1957)
The marginal propensity to save increases with income
Inequality channels resources towards individuals whose marginal propensity
to save is higher
=⇒ increases aggregate savings & capital accumulation
=⇒ enhances the development process
Oded Galor Inequality and Growth July 9, 2015 2 / 1
![Page 7: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/7.jpg)
From the Classical to the Modern Perspective The Classical Paradigm
The Classical Theory
Inequality is beneficial for growth (in the post-industrialization stage)
Keynes (1920), Kaldor (1957)
The marginal propensity to save increases with income
Inequality channels resources towards individuals whose marginal propensity
to save is higher
=⇒ increases aggregate savings & capital accumulation
=⇒ enhances the development process
Oded Galor Inequality and Growth July 9, 2015 2 / 1
![Page 8: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/8.jpg)
From the Classical to the Modern Perspective The Neoclassical Viewpoint
The Neoclassical Paradigm
The Representative Agent Approach
Rejects the role of heterogeneity, and thus income distribution, ineconomic growth
Growth Process ⇒ Income Distribution
Income Distribution ; Growth Process
Oded Galor Inequality and Growth July 9, 2015 3 / 1
![Page 9: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/9.jpg)
From the Classical to the Modern Perspective The Neoclassical Viewpoint
The Neoclassical Paradigm
The Representative Agent Approach
Rejects the role of heterogeneity, and thus income distribution, ineconomic growth
Growth Process ⇒ Income Distribution
Income Distribution ; Growth Process
Oded Galor Inequality and Growth July 9, 2015 3 / 1
![Page 10: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/10.jpg)
From the Classical to the Modern Perspective The Neoclassical Viewpoint
The Neoclassical Paradigm
The Representative Agent Approach
Rejects the role of heterogeneity, and thus income distribution, ineconomic growth
Growth Process ⇒ Income Distribution
Income Distribution ; Growth Process
Oded Galor Inequality and Growth July 9, 2015 3 / 1
![Page 11: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/11.jpg)
From the Classical to the Modern Perspective The Neoclassical Viewpoint
The Neoclassical Paradigm
The Representative Agent Approach
Rejects the role of heterogeneity, and thus income distribution, ineconomic growth
Growth Process ⇒ Income Distribution
Income Distribution ; Growth Process
Oded Galor Inequality and Growth July 9, 2015 3 / 1
![Page 12: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/12.jpg)
From the Classical to the Modern Perspective The Neoclassical Viewpoint
The Neoclassical Paradigm
The Representative Agent Approach
Rejects the role of heterogeneity, and thus income distribution, ineconomic growth
Growth Process ⇒ Income Distribution
Income Distribution ; Growth Process
Oded Galor Inequality and Growth July 9, 2015 3 / 1
![Page 13: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/13.jpg)
The Modern Perspective
The Modern Perspective: Origins
Galor and Zeira (1988, 1993)
Unlike the Neoclassical Paradigm
Income Distribution ⇒ the growth process
Unlike the Classical Perspective
Underlined the adverse effect of Inequality on the growth process
Oded Galor Inequality and Growth July 9, 2015 4 / 1
![Page 14: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/14.jpg)
The Modern Perspective
The Modern Perspective: Origins
Galor and Zeira (1988, 1993)
Unlike the Neoclassical Paradigm
Income Distribution ⇒ the growth process
Unlike the Classical Perspective
Underlined the adverse effect of Inequality on the growth process
Oded Galor Inequality and Growth July 9, 2015 4 / 1
![Page 15: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/15.jpg)
The Modern Perspective
The Modern Perspective: Origins
Galor and Zeira (1988, 1993)
Unlike the Neoclassical Paradigm
Income Distribution ⇒ the growth process
Unlike the Classical Perspective
Underlined the adverse effect of Inequality on the growth process
Oded Galor Inequality and Growth July 9, 2015 4 / 1
![Page 16: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/16.jpg)
The Modern Perspective
The Modern Perspective: Origins
Galor and Zeira (1988, 1993)
Unlike the Neoclassical Paradigm
Income Distribution ⇒ the growth process
Unlike the Classical Perspective
Underlined the adverse effect of Inequality on the growth process
Oded Galor Inequality and Growth July 9, 2015 4 / 1
![Page 17: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/17.jpg)
The Modern Perspective
The Modern Perspective: Origins
Galor and Zeira (1988, 1993)
Unlike the Neoclassical Paradigm
Income Distribution ⇒ the growth process
Unlike the Classical Perspective
Underlined the adverse effect of Inequality on the growth process
Oded Galor Inequality and Growth July 9, 2015 4 / 1
![Page 18: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/18.jpg)
The Modern Perspective
The Modern Perspective: Origins
Galor and Zeira (1988, 1993)
Unlike the Neoclassical Paradigm
Income Distribution ⇒ the growth process
Unlike the Classical Perspective
Underlined the adverse effect of Inequality on the growth process
Oded Galor Inequality and Growth July 9, 2015 4 / 1
![Page 19: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/19.jpg)
The Modern Perspective The Credit market imperfection Channel
The Credit Market Imperfections Approach: Assumptions
Main assumptions:
Credit market imperfections
Differences in the interest rates for borrowers and lenders
and either
Fixed investment cost in education or in other individual-specific projects
or
Saving and bequest rates are increasing function of wealth (Moav, (2002) Galor and
Moav (2004))
Oded Galor Inequality and Growth July 9, 2015 5 / 1
![Page 20: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/20.jpg)
The Modern Perspective The Credit market imperfection Channel
The Credit Market Imperfections Approach: Assumptions
Main assumptions:
Credit market imperfections
Differences in the interest rates for borrowers and lenders
and either
Fixed investment cost in education or in other individual-specific projects
or
Saving and bequest rates are increasing function of wealth (Moav, (2002) Galor and
Moav (2004))
Oded Galor Inequality and Growth July 9, 2015 5 / 1
![Page 21: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/21.jpg)
The Modern Perspective The Credit market imperfection Channel
The Credit Market Imperfections Approach: Assumptions
Main assumptions:
Credit market imperfections
Differences in the interest rates for borrowers and lenders
and either
Fixed investment cost in education or in other individual-specific projects
or
Saving and bequest rates are increasing function of wealth (Moav, (2002) Galor and
Moav (2004))
Oded Galor Inequality and Growth July 9, 2015 5 / 1
![Page 22: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/22.jpg)
The Modern Perspective The Credit market imperfection Channel
The Credit Market Imperfections Approach: Assumptions
Main assumptions:
Credit market imperfections
Differences in the interest rates for borrowers and lenders
and either
Fixed investment cost in education or in other individual-specific projects
or
Saving and bequest rates are increasing function of wealth (Moav, (2002) Galor and
Moav (2004))
Oded Galor Inequality and Growth July 9, 2015 5 / 1
![Page 23: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/23.jpg)
The Modern Perspective The Credit market imperfection Channel
The Credit Market Imperfections Approach: Assumptions
Main assumptions:
Credit market imperfections
Differences in the interest rates for borrowers and lenders
and either
Fixed investment cost in education or in other individual-specific projects
or
Saving and bequest rates are increasing function of wealth (Moav, (2002) Galor and
Moav (2004))
Oded Galor Inequality and Growth July 9, 2015 5 / 1
![Page 24: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/24.jpg)
The Modern Perspective The Credit market imperfection Channel
The Credit Market Imperfections Approach: Mechanism
Inequality affects occupational choices: skilled vs. unskilled workers or
entrepreneurs vs. workers
Non-poor economies:
Inequality =⇒ under-investment in human capital (inv’t projects)that is transmitted across generations =⇒ lower output growth inthe short-run and in the long-run
Poor economies:
Inequality permits some investment in HC (inv’t projects) and maythus promote output growth
The human capital channel is consistent with evidence (Perotti (1996))
Oded Galor Inequality and Growth July 9, 2015 6 / 1
![Page 25: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/25.jpg)
The Modern Perspective The Credit market imperfection Channel
The Credit Market Imperfections Approach: Mechanism
Inequality affects occupational choices: skilled vs. unskilled workers or
entrepreneurs vs. workers
Non-poor economies:
Inequality =⇒ under-investment in human capital (inv’t projects)that is transmitted across generations =⇒ lower output growth inthe short-run and in the long-run
Poor economies:
Inequality permits some investment in HC (inv’t projects) and maythus promote output growth
The human capital channel is consistent with evidence (Perotti (1996))
Oded Galor Inequality and Growth July 9, 2015 6 / 1
![Page 26: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/26.jpg)
The Modern Perspective The Credit market imperfection Channel
The Credit Market Imperfections Approach: Mechanism
Inequality affects occupational choices: skilled vs. unskilled workers or
entrepreneurs vs. workers
Non-poor economies:
Inequality =⇒ under-investment in human capital (inv’t projects)that is transmitted across generations =⇒ lower output growth inthe short-run and in the long-run
Poor economies:
Inequality permits some investment in HC (inv’t projects) and maythus promote output growth
The human capital channel is consistent with evidence (Perotti (1996))
Oded Galor Inequality and Growth July 9, 2015 6 / 1
![Page 27: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/27.jpg)
The Modern Perspective The Credit market imperfection Channel
The Credit Market Imperfections Approach: Mechanism
Inequality affects occupational choices: skilled vs. unskilled workers or
entrepreneurs vs. workers
Non-poor economies:
Inequality =⇒ under-investment in human capital (inv’t projects)that is transmitted across generations =⇒ lower output growth inthe short-run and in the long-run
Poor economies:
Inequality permits some investment in HC (inv’t projects) and maythus promote output growth
The human capital channel is consistent with evidence (Perotti (1996))
Oded Galor Inequality and Growth July 9, 2015 6 / 1
![Page 28: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/28.jpg)
The Modern Perspective The Credit market imperfection Channel
The Credit Market Imperfections Approach: Mechanism
Inequality affects occupational choices: skilled vs. unskilled workers or
entrepreneurs vs. workers
Non-poor economies:
Inequality =⇒ under-investment in human capital (inv’t projects)that is transmitted across generations =⇒ lower output growth inthe short-run and in the long-run
Poor economies:
Inequality permits some investment in HC (inv’t projects) and maythus promote output growth
The human capital channel is consistent with evidence (Perotti (1996))
Oded Galor Inequality and Growth July 9, 2015 6 / 1
![Page 29: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/29.jpg)
The Modern Perspective The Political Economy Channel
The Political Economy Approach
Echoes the hypothesis of the CMI Approach
Inequality is harmful for the growth process
Inequality =⇒ political pressure for redistribution
Higher (distortionary) taxation =⇒ lower investment and slower eco-nomic growth
Alesina and Rodrik, (1994) Persson and Tabellini (1994)
This channel is inconsistent with evidence (Perotti (1996))
Oded Galor Inequality and Growth July 9, 2015 7 / 1
![Page 30: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/30.jpg)
The Modern Perspective The Political Economy Channel
The Political Economy Approach
Echoes the hypothesis of the CMI Approach
Inequality is harmful for the growth process
Inequality =⇒ political pressure for redistribution
Higher (distortionary) taxation =⇒ lower investment and slower eco-nomic growth
Alesina and Rodrik, (1994) Persson and Tabellini (1994)
This channel is inconsistent with evidence (Perotti (1996))
Oded Galor Inequality and Growth July 9, 2015 7 / 1
![Page 31: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/31.jpg)
The Modern Perspective The Political Economy Channel
The Political Economy Approach
Echoes the hypothesis of the CMI Approach
Inequality is harmful for the growth process
Inequality =⇒ political pressure for redistribution
Higher (distortionary) taxation =⇒ lower investment and slower eco-nomic growth
Alesina and Rodrik, (1994) Persson and Tabellini (1994)
This channel is inconsistent with evidence (Perotti (1996))
Oded Galor Inequality and Growth July 9, 2015 7 / 1
![Page 32: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/32.jpg)
The Modern Perspective The Political Economy Channel
The Political Economy Approach
Echoes the hypothesis of the CMI Approach
Inequality is harmful for the growth process
Inequality =⇒ political pressure for redistribution
Higher (distortionary) taxation =⇒ lower investment and slower eco-nomic growth
Alesina and Rodrik, (1994) Persson and Tabellini (1994)
This channel is inconsistent with evidence (Perotti (1996))
Oded Galor Inequality and Growth July 9, 2015 7 / 1
![Page 33: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/33.jpg)
The Modern Perspective The Political Economy Channel
The Political Economy Approach
Echoes the hypothesis of the CMI Approach
Inequality is harmful for the growth process
Inequality =⇒ political pressure for redistribution
Higher (distortionary) taxation =⇒ lower investment and slower eco-nomic growth
Alesina and Rodrik, (1994) Persson and Tabellini (1994)
This channel is inconsistent with evidence (Perotti (1996))
Oded Galor Inequality and Growth July 9, 2015 7 / 1
![Page 34: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/34.jpg)
The Modern Perspective The Political Economy Channel
The Political Economy Approach
Echoes the hypothesis of the CMI Approach
Inequality is harmful for the growth process
Inequality =⇒ political pressure for redistribution
Higher (distortionary) taxation =⇒ lower investment and slower eco-nomic growth
Alesina and Rodrik, (1994) Persson and Tabellini (1994)
This channel is inconsistent with evidence (Perotti (1996))
Oded Galor Inequality and Growth July 9, 2015 7 / 1
![Page 35: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/35.jpg)
The Modern Perspective The Political Economy Channel
The Political Economy Approach: An Alternative Channel
Inequality is harmful for the growth process
Inequality =⇒ incentive for better endowed agents (landowners) to blockredistribution
Efficient redistribution policies are not implemented
Benabou, (2000), Galor-Moav-Vollrath (2009)
Oded Galor Inequality and Growth July 9, 2015 8 / 1
![Page 36: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/36.jpg)
The Modern Perspective The Political Economy Channel
The Political Economy Approach: An Alternative Channel
Inequality is harmful for the growth process
Inequality =⇒ incentive for better endowed agents (landowners) to blockredistribution
Efficient redistribution policies are not implemented
Benabou, (2000), Galor-Moav-Vollrath (2009)
Oded Galor Inequality and Growth July 9, 2015 8 / 1
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The Modern Perspective The Political Economy Channel
The Political Economy Approach: An Alternative Channel
Inequality is harmful for the growth process
Inequality =⇒ incentive for better endowed agents (landowners) to blockredistribution
Efficient redistribution policies are not implemented
Benabou, (2000), Galor-Moav-Vollrath (2009)
Oded Galor Inequality and Growth July 9, 2015 8 / 1
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The Modern Perspective The Political Economy Channel
The Political Economy Approach: An Alternative Channel
Inequality is harmful for the growth process
Inequality =⇒ incentive for better endowed agents (landowners) to blockredistribution
Efficient redistribution policies are not implemented
Benabou, (2000), Galor-Moav-Vollrath (2009)
Oded Galor Inequality and Growth July 9, 2015 8 / 1
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The Modern Perspective Socio-Political Instability
The Socio-Political Instability Approach
Echoes the hypothesis of the CMI Approach
Inequality is harmful for the growth process
Inequality =⇒ Socio-Political instability
Socio-Political instability =⇒ reduces the security of property rights=⇒ lower investment and slower economic growth (Alesina and Perotti (1996))
This channel is consistent with evidence (Perotti (1996))
Oded Galor Inequality and Growth July 9, 2015 9 / 1
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The Modern Perspective Socio-Political Instability
The Socio-Political Instability Approach
Echoes the hypothesis of the CMI Approach
Inequality is harmful for the growth process
Inequality =⇒ Socio-Political instability
Socio-Political instability =⇒ reduces the security of property rights=⇒ lower investment and slower economic growth (Alesina and Perotti (1996))
This channel is consistent with evidence (Perotti (1996))
Oded Galor Inequality and Growth July 9, 2015 9 / 1
![Page 41: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/41.jpg)
The Modern Perspective Socio-Political Instability
The Socio-Political Instability Approach
Echoes the hypothesis of the CMI Approach
Inequality is harmful for the growth process
Inequality =⇒ Socio-Political instability
Socio-Political instability =⇒ reduces the security of property rights=⇒ lower investment and slower economic growth (Alesina and Perotti (1996))
This channel is consistent with evidence (Perotti (1996))
Oded Galor Inequality and Growth July 9, 2015 9 / 1
![Page 42: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/42.jpg)
The Modern Perspective Socio-Political Instability
The Socio-Political Instability Approach
Echoes the hypothesis of the CMI Approach
Inequality is harmful for the growth process
Inequality =⇒ Socio-Political instability
Socio-Political instability =⇒ reduces the security of property rights=⇒ lower investment and slower economic growth (Alesina and Perotti (1996))
This channel is consistent with evidence (Perotti (1996))
Oded Galor Inequality and Growth July 9, 2015 9 / 1
![Page 43: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/43.jpg)
The Modern Perspective Socio-Political Instability
The Socio-Political Instability Approach
Echoes the hypothesis of the CMI Approach
Inequality is harmful for the growth process
Inequality =⇒ Socio-Political instability
Socio-Political instability =⇒ reduces the security of property rights=⇒ lower investment and slower economic growth (Alesina and Perotti (1996))
This channel is consistent with evidence (Perotti (1996))
Oded Galor Inequality and Growth July 9, 2015 9 / 1
![Page 44: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/44.jpg)
The Modern Perspective Socio-Political Instability
The Socio-Political Instability Approach
Echoes the hypothesis of the CMI Approach
Inequality is harmful for the growth process
Inequality =⇒ Socio-Political instability
Socio-Political instability =⇒ reduces the security of property rights=⇒ lower investment and slower economic growth (Alesina and Perotti (1996))
This channel is consistent with evidence (Perotti (1996))
Oded Galor Inequality and Growth July 9, 2015 9 / 1
![Page 45: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/45.jpg)
The Modern Perspective Gender Inequality
Gender Inequality
Gender inequality is harmful for the growth process
Galor-Weil (AER 1996)
Gender inequality reduces the opportunity cost of raising children more than
it reduces household income
=⇒ increases fertility
=⇒ reduces human capital investment (quantity-quality trade-off)
=⇒ lowers female labor force participation
=⇒ slows the growth process
Oded Galor Inequality and Growth July 9, 2015 10 / 1
![Page 46: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/46.jpg)
The Modern Perspective Gender Inequality
Gender Inequality
Gender inequality is harmful for the growth process
Galor-Weil (AER 1996)
Gender inequality reduces the opportunity cost of raising children more than
it reduces household income
=⇒ increases fertility
=⇒ reduces human capital investment (quantity-quality trade-off)
=⇒ lowers female labor force participation
=⇒ slows the growth process
Oded Galor Inequality and Growth July 9, 2015 10 / 1
![Page 47: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/47.jpg)
The Modern Perspective Gender Inequality
Gender Inequality
Gender inequality is harmful for the growth process
Galor-Weil (AER 1996)
Gender inequality reduces the opportunity cost of raising children more than
it reduces household income
=⇒ increases fertility
=⇒ reduces human capital investment (quantity-quality trade-off)
=⇒ lowers female labor force participation
=⇒ slows the growth process
Oded Galor Inequality and Growth July 9, 2015 10 / 1
![Page 48: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/48.jpg)
The Modern Perspective Gender Inequality
Gender Inequality
Gender inequality is harmful for the growth process
Galor-Weil (AER 1996)
Gender inequality reduces the opportunity cost of raising children more than
it reduces household income
=⇒ increases fertility
=⇒ reduces human capital investment (quantity-quality trade-off)
=⇒ lowers female labor force participation
=⇒ slows the growth process
Oded Galor Inequality and Growth July 9, 2015 10 / 1
![Page 49: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/49.jpg)
The Modern Perspective Gender Inequality
Gender Inequality
Gender inequality is harmful for the growth process
Galor-Weil (AER 1996)
Gender inequality reduces the opportunity cost of raising children more than
it reduces household income
=⇒ increases fertility
=⇒ reduces human capital investment (quantity-quality trade-off)
=⇒ lowers female labor force participation
=⇒ slows the growth process
Oded Galor Inequality and Growth July 9, 2015 10 / 1
![Page 50: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/50.jpg)
The Modern Perspective Gender Inequality
Gender Inequality
Gender inequality is harmful for the growth process
Galor-Weil (AER 1996)
Gender inequality reduces the opportunity cost of raising children more than
it reduces household income
=⇒ increases fertility
=⇒ reduces human capital investment (quantity-quality trade-off)
=⇒ lowers female labor force participation
=⇒ slows the growth process
Oded Galor Inequality and Growth July 9, 2015 10 / 1
![Page 51: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/51.jpg)
The Modern Perspective Gender Inequality
Gender Inequality
Gender inequality is harmful for the growth process
Galor-Weil (AER 1996)
Gender inequality reduces the opportunity cost of raising children more than
it reduces household income
=⇒ increases fertility
=⇒ reduces human capital investment (quantity-quality trade-off)
=⇒ lowers female labor force participation
=⇒ slows the growth process
Oded Galor Inequality and Growth July 9, 2015 10 / 1
![Page 52: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/52.jpg)
The Modern Perspective The Unified Approach
A unified theory of inequality and economic development
Galor and Moav (2004):
Captures the changing role of inequality in the growth process
Unifies the Classical and the Modern Paradigms
Provides an intertemporal reconciliation between conflicting viewpoints about
the effect of inequality on economic growth
Underlines the role of inequality in triggering socio-political transition (Galor-
Moav-Vollrath (2009), Galor-Moav (2006))
Oded Galor Inequality and Growth July 9, 2015 11 / 1
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The Modern Perspective The Unified Approach
A unified theory of inequality and economic development
Galor and Moav (2004):
Captures the changing role of inequality in the growth process
Unifies the Classical and the Modern Paradigms
Provides an intertemporal reconciliation between conflicting viewpoints about
the effect of inequality on economic growth
Underlines the role of inequality in triggering socio-political transition (Galor-
Moav-Vollrath (2009), Galor-Moav (2006))
Oded Galor Inequality and Growth July 9, 2015 11 / 1
![Page 54: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/54.jpg)
The Modern Perspective The Unified Approach
A unified theory of inequality and economic development
Galor and Moav (2004):
Captures the changing role of inequality in the growth process
Unifies the Classical and the Modern Paradigms
Provides an intertemporal reconciliation between conflicting viewpoints about
the effect of inequality on economic growth
Underlines the role of inequality in triggering socio-political transition (Galor-
Moav-Vollrath (2009), Galor-Moav (2006))
Oded Galor Inequality and Growth July 9, 2015 11 / 1
![Page 55: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/55.jpg)
The Modern Perspective The Unified Approach
A unified theory of inequality and economic development
Galor and Moav (2004):
Captures the changing role of inequality in the growth process
Unifies the Classical and the Modern Paradigms
Provides an intertemporal reconciliation between conflicting viewpoints about
the effect of inequality on economic growth
Underlines the role of inequality in triggering socio-political transition (Galor-
Moav-Vollrath (2009), Galor-Moav (2006))
Oded Galor Inequality and Growth July 9, 2015 11 / 1
![Page 56: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/56.jpg)
The Modern Perspective The Unified Approach
A unified theory of inequality and economic development
Galor and Moav (2004):
Captures the changing role of inequality in the growth process
Unifies the Classical and the Modern Paradigms
Provides an intertemporal reconciliation between conflicting viewpoints about
the effect of inequality on economic growth
Underlines the role of inequality in triggering socio-political transition (Galor-
Moav-Vollrath (2009), Galor-Moav (2006))
Oded Galor Inequality and Growth July 9, 2015 11 / 1
![Page 57: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/57.jpg)
The Modern Perspective The Unified Approach
A unified theory of inequality and economic development
Galor and Moav (2004):
Captures the changing role of inequality in the growth process
Unifies the Classical and the Modern Paradigms
Provides an intertemporal reconciliation between conflicting viewpoints about
the effect of inequality on economic growth
Underlines the role of inequality in triggering socio-political transition (Galor-
Moav-Vollrath (2009), Galor-Moav (2006))
Oded Galor Inequality and Growth July 9, 2015 11 / 1
![Page 58: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/58.jpg)
The Modern Perspective The Unified Approach
A Unified Theory of Inequality and Development
A unified theory of the dynamic implications of inequality on the growthprocess
Places the dominating modern theories within a broader unified struc-ture
Provides an intertemporal reconciliation between the Classical view-point and the Modern perspective
Oded Galor Inequality and Growth July 9, 2015 12 / 1
![Page 59: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/59.jpg)
The Modern Perspective The Unified Approach
A Unified Theory of Inequality and Development
A unified theory of the dynamic implications of inequality on the growthprocess
Places the dominating modern theories within a broader unified struc-ture
Provides an intertemporal reconciliation between the Classical view-point and the Modern perspective
Oded Galor Inequality and Growth July 9, 2015 12 / 1
![Page 60: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/60.jpg)
The Modern Perspective The Unified Approach
A Unified Theory of Inequality and Development
A unified theory of the dynamic implications of inequality on the growthprocess
Places the dominating modern theories within a broader unified struc-ture
Provides an intertemporal reconciliation between the Classical view-point and the Modern perspective
Oded Galor Inequality and Growth July 9, 2015 12 / 1
![Page 61: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/61.jpg)
The Modern Perspective The Unified Approach
A Unified Theory of Inequality and Development
A unified theory of the dynamic implications of inequality on the growthprocess
Places the dominating modern theories within a broader unified struc-ture
Provides an intertemporal reconciliation between the Classical view-point and the Modern perspective
Oded Galor Inequality and Growth July 9, 2015 12 / 1
![Page 62: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/62.jpg)
The Modern Perspective The Unified Approach
Main Hypothesis
The replacement of physical capital accumulation by human capital accu-
mulation as a prime engine of economic growth has changed the qualitative
impact of inequality on the process of development
Early stages of industrialization: physical capital accumulation is a main
engine of growth =⇒Inequality enhanced development by channeling resources towards indi-viduals whose marginal propensity to save is higher
Later stages of development: the return to human capital increases due to
capital-skill complementarity and human capital became the prime engine of
growth =⇒Inequality, due to credit constraints, is harmful for growth
Oded Galor Inequality and Growth July 9, 2015 13 / 1
![Page 63: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/63.jpg)
The Modern Perspective The Unified Approach
Main Hypothesis
The replacement of physical capital accumulation by human capital accu-
mulation as a prime engine of economic growth has changed the qualitative
impact of inequality on the process of development
Early stages of industrialization: physical capital accumulation is a main
engine of growth =⇒Inequality enhanced development by channeling resources towards indi-viduals whose marginal propensity to save is higher
Later stages of development: the return to human capital increases due to
capital-skill complementarity and human capital became the prime engine of
growth =⇒Inequality, due to credit constraints, is harmful for growth
Oded Galor Inequality and Growth July 9, 2015 13 / 1
![Page 64: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/64.jpg)
The Modern Perspective The Unified Approach
Main Hypothesis
The replacement of physical capital accumulation by human capital accu-
mulation as a prime engine of economic growth has changed the qualitative
impact of inequality on the process of development
Early stages of industrialization: physical capital accumulation is a main
engine of growth =⇒
Inequality enhanced development by channeling resources towards indi-viduals whose marginal propensity to save is higher
Later stages of development: the return to human capital increases due to
capital-skill complementarity and human capital became the prime engine of
growth =⇒Inequality, due to credit constraints, is harmful for growth
Oded Galor Inequality and Growth July 9, 2015 13 / 1
![Page 65: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/65.jpg)
The Modern Perspective The Unified Approach
Main Hypothesis
The replacement of physical capital accumulation by human capital accu-
mulation as a prime engine of economic growth has changed the qualitative
impact of inequality on the process of development
Early stages of industrialization: physical capital accumulation is a main
engine of growth =⇒Inequality enhanced development by channeling resources towards indi-viduals whose marginal propensity to save is higher
Later stages of development: the return to human capital increases due to
capital-skill complementarity and human capital became the prime engine of
growth =⇒Inequality, due to credit constraints, is harmful for growth
Oded Galor Inequality and Growth July 9, 2015 13 / 1
![Page 66: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/66.jpg)
The Modern Perspective The Unified Approach
Main Hypothesis
The replacement of physical capital accumulation by human capital accu-
mulation as a prime engine of economic growth has changed the qualitative
impact of inequality on the process of development
Early stages of industrialization: physical capital accumulation is a main
engine of growth =⇒Inequality enhanced development by channeling resources towards indi-viduals whose marginal propensity to save is higher
Later stages of development: the return to human capital increases due to
capital-skill complementarity and human capital became the prime engine of
growth =⇒
Inequality, due to credit constraints, is harmful for growth
Oded Galor Inequality and Growth July 9, 2015 13 / 1
![Page 67: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/67.jpg)
The Modern Perspective The Unified Approach
Main Hypothesis
The replacement of physical capital accumulation by human capital accu-
mulation as a prime engine of economic growth has changed the qualitative
impact of inequality on the process of development
Early stages of industrialization: physical capital accumulation is a main
engine of growth =⇒Inequality enhanced development by channeling resources towards indi-viduals whose marginal propensity to save is higher
Later stages of development: the return to human capital increases due to
capital-skill complementarity and human capital became the prime engine of
growth =⇒Inequality, due to credit constraints, is harmful for growth
Oded Galor Inequality and Growth July 9, 2015 13 / 1
![Page 68: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/68.jpg)
The Modern Perspective The Unified Approach
Central Argument
Fundamental asymmetry between:
Human capital accumulation
Physical capital accumulation
Oded Galor Inequality and Growth July 9, 2015 14 / 1
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The Modern Perspective The Unified Approach
Central Argument
Fundamental asymmetry between:
Human capital accumulation
Physical capital accumulation
Oded Galor Inequality and Growth July 9, 2015 14 / 1
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The Modern Perspective The Unified Approach
Central Argument
Fundamental asymmetry between:
Human capital accumulation
Physical capital accumulation
Oded Galor Inequality and Growth July 9, 2015 14 / 1
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The Modern Perspective The Unified Approach
Central Argument
Fundamental asymmetry between:
Human capital accumulation
Physical capital accumulation
Oded Galor Inequality and Growth July 9, 2015 14 / 1
![Page 72: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/72.jpg)
The Modern Perspective The Unified Approach
Human Capital vs. Physical Capital Accumulation
Human capital is embodied in humans =⇒
Physiological constraints subjects its accumulation at the individual levelto diminishing returns
The accumulation of human capital would be larger if it would be widelydistributed among individuals in society
Physical capital is not embodied in humans =⇒
Physical capital accumulation may benefit from the concentration ofwealth among individuals whose marginal propensity to save is larger
Oded Galor Inequality and Growth July 9, 2015 15 / 1
![Page 73: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/73.jpg)
The Modern Perspective The Unified Approach
Human Capital vs. Physical Capital Accumulation
Human capital is embodied in humans =⇒
Physiological constraints subjects its accumulation at the individual levelto diminishing returns
The accumulation of human capital would be larger if it would be widelydistributed among individuals in society
Physical capital is not embodied in humans =⇒
Physical capital accumulation may benefit from the concentration ofwealth among individuals whose marginal propensity to save is larger
Oded Galor Inequality and Growth July 9, 2015 15 / 1
![Page 74: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/74.jpg)
The Modern Perspective The Unified Approach
Human Capital vs. Physical Capital Accumulation
Human capital is embodied in humans =⇒
Physiological constraints subjects its accumulation at the individual levelto diminishing returns
The accumulation of human capital would be larger if it would be widelydistributed among individuals in society
Physical capital is not embodied in humans =⇒
Physical capital accumulation may benefit from the concentration ofwealth among individuals whose marginal propensity to save is larger
Oded Galor Inequality and Growth July 9, 2015 15 / 1
![Page 75: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/75.jpg)
The Modern Perspective The Unified Approach
Human Capital vs. Physical Capital Accumulation
Human capital is embodied in humans =⇒
Physiological constraints subjects its accumulation at the individual levelto diminishing returns
The accumulation of human capital would be larger if it would be widelydistributed among individuals in society
Physical capital is not embodied in humans =⇒
Physical capital accumulation may benefit from the concentration ofwealth among individuals whose marginal propensity to save is larger
Oded Galor Inequality and Growth July 9, 2015 15 / 1
![Page 76: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/76.jpg)
The Modern Perspective The Unified Approach
Human Capital vs. Physical Capital Accumulation
Human capital is embodied in humans =⇒
Physiological constraints subjects its accumulation at the individual levelto diminishing returns
The accumulation of human capital would be larger if it would be widelydistributed among individuals in society
Physical capital is not embodied in humans =⇒
Physical capital accumulation may benefit from the concentration ofwealth among individuals whose marginal propensity to save is larger
Oded Galor Inequality and Growth July 9, 2015 15 / 1
![Page 77: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/77.jpg)
The Modern Perspective The Unified Approach
Human Capital vs. Physical Capital Accumulation
Human capital is embodied in humans =⇒
Physiological constraints subjects its accumulation at the individual levelto diminishing returns
The accumulation of human capital would be larger if it would be widelydistributed among individuals in society
Physical capital is not embodied in humans =⇒
Physical capital accumulation may benefit from the concentration ofwealth among individuals whose marginal propensity to save is larger
Oded Galor Inequality and Growth July 9, 2015 15 / 1
![Page 78: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/78.jpg)
The Modern Perspective The Unified Approach
Inequality and Physical and Human Capital Accumulation
Inequality is conducive for physical capital accumulation, as long asthe marginal propensity to save rises with income
Inequality is harmful for human capital accumulation, as long ascredit constraints are binding
Oded Galor Inequality and Growth July 9, 2015 16 / 1
![Page 79: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/79.jpg)
The Modern Perspective The Unified Approach
Inequality and Physical and Human Capital Accumulation
Inequality is conducive for physical capital accumulation, as long asthe marginal propensity to save rises with income
Inequality is harmful for human capital accumulation, as long ascredit constraints are binding
Oded Galor Inequality and Growth July 9, 2015 16 / 1
![Page 80: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/80.jpg)
The Modern Perspective The Unified Approach
Inequality and Physical and Human Capital Accumulation
Inequality is conducive for physical capital accumulation, as long asthe marginal propensity to save rises with income
Inequality is harmful for human capital accumulation, as long ascredit constraints are binding
Oded Galor Inequality and Growth July 9, 2015 16 / 1
![Page 81: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/81.jpg)
The Modern Perspective The Unified Approach
Inequality and Growth in Different Stages of Development
Inequality stimulates economic growth in stages of development inwhich physical capital accumulation is the prime engine of growth
Inequality is harmful for economic growth in stages of development inwhich human capital accumulation is the prime engine of economicgrowth and credit constraints are still binding
Oded Galor Inequality and Growth July 9, 2015 17 / 1
![Page 82: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/82.jpg)
The Modern Perspective The Unified Approach
Inequality and Growth in Different Stages of Development
Inequality stimulates economic growth in stages of development inwhich physical capital accumulation is the prime engine of growth
Inequality is harmful for economic growth in stages of development inwhich human capital accumulation is the prime engine of economicgrowth and credit constraints are still binding
Oded Galor Inequality and Growth July 9, 2015 17 / 1
![Page 83: Inequality and the Process of Developmentmedia.virbcdn.com/files/f9/66fdfe747ff895cf-Inequality... · 2017. 11. 28. · Inequality =) under-investment in human capital (inv’t projects)](https://reader035.fdocuments.us/reader035/viewer/2022071007/5fc501ccdd902a49e30646a8/html5/thumbnails/83.jpg)
The Modern Perspective The Unified Approach
Inequality and Growth in Different Stages of Development
Inequality stimulates economic growth in stages of development inwhich physical capital accumulation is the prime engine of growth
Inequality is harmful for economic growth in stages of development inwhich human capital accumulation is the prime engine of economicgrowth and credit constraints are still binding
Oded Galor Inequality and Growth July 9, 2015 17 / 1