We expand the model presented by galor and zeira 1993 to. We will deal with both issues of how inequality impacts on the functioning of the economy, as well as with issues of why inequality arises, and we will do so using theoretical as well as. In contrast to the representative agent approach that dominated the field of macroeconomics till the early 1990s and argued that heterogeneity has no impact on macroeconomic activity, the model demonstrates that in the. Oded galor born 1953 is an israeli economist who is currently herbert h. The study demonstrates that the longrun equilibrium depends on the initial distribution of income.
To speak to those debates, this paper provides estimates. It is shown that in the presence of credit markets imperfections and indivisibilities in investment in human capital, the initial distribution of wealth affects aggregate output and investment both in the short and in the long run, as there are multiple steady states. The distribution of human capital and economic growth oded galor and daniel tsiddony revised. The proposed theory unifies two fundamental approaches regarding the effect of income distribution on the process of development. Oded galor and joseph zeira mpra paper from university library of munich, germany. Income distribution and macroeconomics munich personal. Pdf this paper analyzes the role of wealth distribution in.
This paper analyzes a simple extension to the work of galor and zeira rev econ stud 60. Their combined citations are counted only for the first article. Among those who have explored various mechanisms to explain the negative aspects of inequality, galor and zeira 1993 theoretically argued that, in developed economies with imperfect capital. Inequality and the process of development cicse lectures, naples lecture ii. This paper analyzes the role of income distribution in macroeconomic analysis. June 30, 1996 this paper analyzes the interaction between the distribution of human capital, technological progress, and economic growth. Galor oded, zeira josephincome distribution and macroeconomics. We expand the model presented by galor and zeira 1993 to represent the fact that the economy benefits from endogenous technological progress and that the government provides financial aid to reduce. Galor, oded, and tsiddon 1997 go further to argue that in an economy in an early stage of development, inequality can even be necessary for future growth. A unied theory of inequality and development oded galor june 9, 2009 oded galor inequality and the process of development. This article investigates the dynamic interactions among demographic transition, income distribution, and economic growth. It is shown that in the presence of credit markets imperfections and indivisibilities in investment in human capital, the initial distribution of wealth affects aggregate output and investment both in the short and in the long run, as there are. They advanced the novel viewpoint that heterogeneity, and thus income distribution, plays an important role in the determination of aggregate economic activity and economic growth.
Zeira1993restud income distribution and macroeconomics a bit challenging mathematically, but an important and rewarding paper. May 29, 2015 applied economics galor zeira model of the inequality in education and income. Mpra paper from university library of munich, germany. Demographic transition, income distribution, and economic. The role that income inequality plays for economic growth has recently received also quite a bit of attention in. The relationship between economic growth and the distribution of income is an important topic in macroeconomics. This paper shows that if we add a second assumption, that technology is nonconvex, the inherited distribution of wealth affects the economy not only in the short run but in the long run as well. For instance, the world bank group has included among its key global. Inequality and economic growth northwestern university. This paper aims to show that the level of inequality increases via the human capital channel with credit market imperfections generating negative effects on economic growth. Editor, journal of economic growth, 1995 codirector of the nber research group on income distribution and macroeconomics, 1995 member of the editorial board, economics and. Income distribution and macroeconomics galor, oded and zeira, joseph brown university, hebrew university 1 july 1988 online at mpra paper no.
In accordance with empirical evidence concerning the conelation between income distribution and output, an economy that is characterized by a relatively equal distribution of. This course offers an introduction to central themes in the field of economics of inequality. Income distribution and macroeconomics with joseph zeira. The research demonstrated that in the presence of capital markets imperfections and local nonconvexities in the production of human capital, income distribution affects aggregate output in the long run, as well as in the. In this paper, we study the relationship between changes in the world interest rate and withincountry inequality during the 19852005 period in which the world interest rate sharply declined. Moreover, it turns out that in the presence of lotteries the relationship between the. This paper analyzes the role of wealth distribution in macroeconomics through investment in human capital.
Income distribution and macroeconomics oded galor and joseph zeira galor zeira inequality and growth 1 57. Inequality, human capital formation and the process of development. The role that income inequality plays in economic growth has also received quite a bit of attention in policy circles and the press recently. Moreover, under imperfect credit markets, galor and zeira 1993 argue that income and wealth distribution determine the allocation of human capital. Their arguement operates through the credit market inperfection channel. Moreover, under imperfect credit markets, galor and zeira 1993 argue that income and wealth distribution determine the allocation of human capital across individuals. Distributional macroeconomics princeton university. This paper reconsiders the significance of income distribution in macroeconomics, a topic that has attracted the attention of economists since the 1990s. Pdf income distribution and macroeconomics researchgate. Zeira income distribution and macroeconomics, res, 1993, who argued that the negative link between inequality and growthdevelopment may exist quite independent of the political economy channel. Find materials for this course in the pages linked along the left. Convex technology and the role of intergenerational transfers. The relationship between aggregate output and the distribution of income is an important topic in macroeconomics galor 2011. This cited by count includes citations to the following articles in scholar.
Galorzeira 1993 an alternative mecahnism was highlighted by o. The galor zeira model is the first macroeconomic model to explore the role of heterogeneity in the determination of macroeconomic behavior. Inequality, human capital formation and the process of. One income distribution and aggregate economic activity is the empirical data, which persistently shows a strong correlation between income distribution and income percapita. Department of economics, brown university, providence, ri 02912. Income distribution and macroeconomics oded galor and joseph zeira galorzeira inequality and growth 1 57. In accordance with empirical evidence concerning the conelation between income distribution and output, an economy that is characterized by a relatively equal distribution of wealth is likely to be wealthier in the long run. Nov 15, 2006 this paper analyzes a simple extension to the work of galor and zeira rev econ stud 60. The initial distribution of income determines whether an economy will converge to a low or highincome regime, as there are multiple steady states in the model. Galor zeira 1993 an alternative mecahnism was highlighted by o. Fertility adjustment prior to education investment. The ones marked may be different from the article in the profile. Galor and zeira have demonstrated that in the presence of credit market.
Galor and zeira 1993, benabou 1996b,1 durlauf 1996, piketty 1997, maoz and moav 1999, ghatak and jiang 2000 and. Income distribution and economics to avoid these overlaps which are essentially the proof that income distribution issues the final part of the introduction, section 6, provides a guide to the contents of the. Deininger, klaus and squire, lyn 1996 a new data set measuring income inequality. Consistent with empirical evidence we show that fertility and income distribution follow an inverted ushaped dynamics in the process of economic development. Uses utipunido pay inequality data to improve on the ds data set of household income inequlaity. Scopus,jerusalem 91905,israel received 28 january 2001.
The effect that income inequality has on economic growth has recently received also quite a bit of attention in policy circles. Galor has contributed to the understanding of process of development over the entire course of human history and the role of deeprooted factors in the transition from. The relationship between aggregate output and the distribution of income is an important topic in macroeconomics see galor, 2011. The galorzeira model is the first macroeconomic model to explore the role of heterogeneity in the determination of macroeconomic behavior. The model was developed by oded galor and joseph zeira in 1988, and it was published in the paper income distribution and macroeconomics, 1993.
Inequality and macroeconomics princeton university. The role that income inequality plays for economic growth has recently received also quite a bit of attention in policy circles and the press. Conventional wisdom about the relationship between income distribution and economic. In line with the predictions of the seminal model of galor and zeira income distribution and macroeconomics. The literature on the relationship between income distribution and economic development, which follows the capital market imperfection approach, shows that income inequality affects longrun economic performance provided that the production technology of human capital or final output is nonconvex. Parental income invt in hc galorzeira inequality and growth 6 57.
Oded galor inequality and the process of development. Review of economic studies 60, 3552, the analysis suggests that the decrease in the world interest rate is associated with a decrease in inequality in poor countries and an increase in inequality in rich ones. It has advanced a novel viewpoint that heterogeneity, and thus income distribution, plays an important role in the determination of aggregate economic activity and economic growth in the short run as well as in the long run. The recent interest in the relationship between growth and distribution is a good example of this. The surge of political economy in the contemporary literature is also a route by which distribution is coming to reoccupy the place it deserves.
Allowing for endowment lotteries alters the dynamics of the model fundamentally. The galorzeira model individuals member of generation t. Moreover, it turns out that in the presence of lotteries the relationship between the severity of credit market imperfections. Income distribution and macroeconomics, mpra paper 51644, university library of munich, germany, revised 01 sep 1989. Goldberger professor of economics at brown university. Galor and zeira analyze the role of heterogeneity in the determination of macroeconomic behavior. Galor and zeira 1988, 1993, has underlined the role of heterogeneity in the determination of macroeconomic activity. Applied economics galorzeira model of the inequality in education and income. In contrast to the representative agent approach that dominated the field of macroeconomics till the early 1990s and argued that heterogeneity has no impact on macroeconomic activity, the model demonstrates that in the presence of capital markets.
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