The galor zeira model is the first macroeconomic model to explore the role of heterogeneity in the determination of macroeconomic behavior. 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. Allowing for endowment lotteries alters the dynamics of the model fundamentally. The main point of my talk macroeconomics and inequality is a twoway street inequality macroeconomy 1. Economic growth 440 johns hopkins university advanced. This paper shows that if we add a second assumption, that technology is nonconvex, the inherited distribution of wealth affects the economy not only.
They have explored various mechanisms to explain the negative aspects of inequality. Galorzeira 1993 one such mechanism is highlighted by o. 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. Applied economics galorzeira model of the inequality in. Find materials for this course in the pages linked along the left. The theoretical model of galor and zeira predicts that the effect of inequality on transitional growth differs depending on the average wealth in the economy. 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. Uses utipunido pay inequality data to improve on the ds data set of household income inequlaity. 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. Revisiting the galorzeira model munich personal repec archive. Galor has contributed to the understanding of process of development over the. Inequality and economic growth northwestern university. Inequality and the process of development cicse lectures, naples lecture ii. Galor and zeira 1993 argue that income distribution plays an important role in the determination of aggregate economic activity and economic growth.
Their combined citations are counted only for the first article. 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. Income distribution and macroeconomics, working papers 2012, brown university, department of economics. The galorzeira model suggests that the impact of inequality on the growth process. Zeira1993restud income distribution and macroeconomics a bit challenging mathematically, but an important and rewarding paper. 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. Inequality, human capital formation and the process of. Goldberger professor of economics at brown university. This paper analyzes the role of wealth distribution in macroeconomics through investment in human capital. Galorzeira 1993 an alternative mecahnism was highlighted by o. The relationship between aggregate output and the distribution of income is an important topic in macroeconomics see galor, 2011. Galor zeira 1993 an alternative mecahnism was highlighted by o. Inequality and macroeconomics princeton university.
Mpra paper from university library of munich, germany. Income distribution and macroeconomics munich personal. In contrast to the representative agent approach that has dominated the field of macroeconomics for several decades, this study analyzes the role of heterogeneity in the determination of. Income distribution and macroeconomics, working papers 2012, brown university, department of. Income distribution and macroeconomics oded galor and joseph zeira galor zeira inequality and growth 1 57. Pdf this paper analyzes the role of wealth distribution in. Nov 15, 2006 this paper analyzes a simple extension to the work of galor and zeira rev econ stud 60. This paper reconsiders the significance of income distribution in macroeconomics, a topic that has attracted the attention of economists since the 1990s. 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. Moreover, it turns out that in the presence of lotteries the relationship between the severity of credit market imperfections. Galor, o 2011, inequality, human capital formation, and the process of development, brown university working papers 20117.
We expand the model presented by galor and zeira 1993 to. This course offers an introduction to central themes in the field of economics of inequality. 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. It is shown that in the presence of credit markets imperfections and indivisibilities in investment in human capital, the initial distribution of.
Panizza 2002 uses statelevel panel data for the united states during 19401980. Inequality and development galorzeira model article. Deininger, klaus and squire, lyn 1996 a new data set measuring income inequality. This paper analyzes the role of income distribution in macroeconomic analysis. One income distribution and aggregate economic activity is the empirical data, which persistently shows a strong correlation between income distribution and income percapita. They argue that when credit markets are either absent or do not work. Previous growth models assumed a representative agent. Galor and zeira analyze the role of heterogeneity in the determination of macroeconomic behavior. 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. Oded galor born 1953 is an israeli economist who is currently herbert h. Oded galor inequality and the process of development. The study demonstrates that the longrun equilibrium depends on the initial distribution of income. Income distribution and macroeconomics galor, oded and zeira, joseph brown university, hebrew university 1 july 1988 online at mpra paper no. 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.
May 29, 2015 applied economics galorzeira model of the inequality in education and income. The role that income inequality plays for economic growth has recently received also quite a bit of attention in policy circles and the press. 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. Risky human capital investment, income distribution, and. 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 the financial hurdles. The model was developed by oded galor and joseph zeira in 1988, and it was published in the paper income distribution and macroeconomics, 1993.
In reality, people differ with respect to endowments they possess. 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 stagnation to growth and in the emergence of the vast. The galorzeira model is the first macroeconomic model to explore the role of heterogeneity in. Income distribution and macroeconomics oded galor and joseph zeira galorzeira inequality and growth 1 57. Galor and zeira 1988, 1993, has underlined the role of heterogeneity in the determination of macroeconomic activity. Their arguement operates through the credit market inperfection channel. 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. Moreover, under imperfect credit markets, galor and zeira 1993 argue that income and wealth distribution determine the allocation of human capital across individuals. Income distribution and macroeconomics, mpra paper 51644, university library of munich, germany, revised 01 sep 1989. Galor and zeira 1993 proposed a model with credit market. This paper reconsiders the signicance of income distribution in macroeconomics, a topic that has attracted the attention of economists since the 1990s.