Factor Shares, Inequality and Capital Flows
35 Pages Posted: 22 May 2015
Date Written: May 20, 2015
We present an endogenous growth model where innovations are factor saving and model the choice of technologies in an Overlapping Generations framework. Markets are competitive and factor prices are determined by marginal productivity of factors; therefore, the income share of reproducible factors increases with the stage of development. Beyond the standard results of this type of model we find that (i) without bequests long run growth is not possible, (ii) if the economy presents long run growth then intra generation inequality may last forever but if the economy does not present long run growth then in steady state there is no intra generation inequality (iii) when the economy is open, the pattern of capital flows depends not only on the relative abundance of factors but also on the technologies and, for this reason, capital may not flow from rich to poor economies (iv) consistently, capital flows may not help to break poverty traps.
Keywords: inequality, capital markets, endogenous growth, capital income share, technology
JEL Classification: O11, O31, O33, O40, F20
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