Download This PaperIncome Inequality and Per Capita Income: Equilibrium of Interactions
80 Pages Posted: 3 Apr 2020 Last revised: 24 Mar 2021
Date Written: February 15, 2021
Abstract
This study shows, in general equilibrium, that raw estimates for income inequality are non-robust to understanding and modeling of economic development. Estimates of country-specific income inequality are endogenously transformed, such that they are cross-sectionally and intertemporally consistent for arrival at what is termed, the `relative country inequality' parameter (d). The relative country inequality parameter is shown to delineate a general equilibrium path for economic development. The equilibrium path consists of three segments, namely, in sequence, contiguous continuums in context of which economic growth propagates economic development (d<0); economic development coincides with economic growth (the steady state equilibrium, d=0); or economic development lags economic growth (d>0). Consistent with non-robustness of neoclassical growth theory to parameterization of economic development, each of fixity at steady state (d=0) and progression beyond steady state (d>0) are Pareto dominated by infiniteness of perturbation between d=0 and d<0. Empirical tests provide robust support for formal theoretical predictions, that is, yield the predicted U-shaped topology, and demonstrate inappropriateness of raw realizations for income inequality to modeling of economic development. Arrival at a qualitatively specified general equilibrium path that parameterizes the growth-development nexus for all feasible countries (a necessary condition for robustness); supports multitudinous realizations of quantitative parameters that feasibly are associated with any specific location on the general equilibrium path (another necessary condition); and that embeds general disequilibrium only in neighborhood of steady state (a desirable condition), evinces arrival at a robustly specified general equilibrium theory for economic development.
Keywords: Economic Development, GDP Per Capita, Innovation, Relative Country Inequality, General Equilibrium, Disequilibrium
JEL Classification: O11, O21, O38, J31
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