Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/22951
Authors: 
Shen, Ling
Year of Publication: 
2006
Series/Report no.: 
Bonn econ discussion papers 2006,6
Abstract: 
Empirical evidence on the relationship between a country?s wealth inequality and economic growth is ambiguous. This paper provides reasonable explanations of this ambiguity. We investigate the implications which the shape of wealth distribution has for economic growth in a framework combining the Schumpeterian quality improvement model and the neoclassic production function. Since two types of individuals are assumed, the poor and the rich, the Gini-coefficient is decomposed in two variables, namely the relative wealth of the poor and the population share of the poor, each having a different effect on economic performance. Particularly in the separating equilibrium, an improvement in the relative wealth of the poor impedes economic growth, but a decline in the population share of the poor enhances economic growth. This suggests that empirical research on the base of the Gini-coefficient cannot generate a general relationship between wealth inequality and economic growth. Moreover, the impact of wealth inequality on economic growth is through the supply of human capital as well as the demand for better quality goods. Hence, the relationship between wealth inequality and economic growth is non-linear.
Subjects: 
inequality
growth
JEL: 
O12
D43
D31
O15
Document Type: 
Working Paper

Files in This Item:
File
Size
332.61 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.