Inequality and Growth: The Dual Role of Human Capital in Development

36 Pages Posted: 19 Feb 2001

See all articles by Theo S. Eicher

Theo S. Eicher

University of Washington - Department of Economics

C. Garcia-Peñalosa

National Center for Scientific Research (CNRS) - GREQAM; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: November 2000

Abstract

To examine how human capital accumulation influences both economic growth and income inequality, we carefully endogenize the demand and supply of skills. We explicitly introduce the costs and externalities in education, and examine how both relate to learning-by-doing and R&D intensity.1 In addition, we endogenize the determinants of the skill-bias of labor demand: the complementarity between technology and skilled and unskilled labor. Our results identify parameters that are central to the evolution of inequality during the development process. We characterise development thresholds when countries switch endogenously from pure learning to directed R&D, and we show that technical change can generate multiple steady states that are consistent with the cross-country data on inequality and skill-premia.

Keywords: Human Capital, Wage Inequality, Biased Technical Change, Threshold Externalities

JEL Classification: J31, O40

Suggested Citation

Eicher, Theo S. and Garcia-Penalosa, Cecilia, Inequality and Growth: The Dual Role of Human Capital in Development (November 2000). Available at SSRN: https://ssrn.com/abstract=260735

Theo S. Eicher (Contact Author)

University of Washington - Department of Economics ( email )

Box 353330
Seattle, WA 98195-3330
United States

Cecilia Garcia-Penalosa

National Center for Scientific Research (CNRS) - GREQAM ( email )

Centre de la Vieille Charité
2, rue de la Charité
Marseille, 13002
France
+33 491 140746 (Phone)
+33 491 900227 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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