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The Interaction between Human and Physical Capital Accumulation and the Growth-Inequality Trade-off

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  • Stephen J. Turnovsky
  • Aditi Mitra

Abstract

This paper analyzes the effects of technological change on growth and inequality in a two-sector economy. The key mechanism is the evolution of the differential rates of return to human relative to physical capital as they respond to the changing technology. Productivity enhancement in the human capital sector increases the growth rate permanently, but in the final output sector, it has only a temporary effect. The effects on inequality depend on (i) the underlying source of inequality and (ii) the time horizon over which the productivity increase occurs. The model can generate growth-inequality relationships consistent with the empirical evidence.

Suggested Citation

  • Stephen J. Turnovsky & Aditi Mitra, 2013. "The Interaction between Human and Physical Capital Accumulation and the Growth-Inequality Trade-off," Journal of Human Capital, University of Chicago Press, vol. 7(1), pages 26-75.
    • Handle: RePEc:ucp:jhucap:doi:10.1086/670270
    DOI: 10.1086/670270
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    3. Borissov, Kirill & Bosi, Stefano & Ha-Huy, Thai & Modesto, Leonor, 2016. "Inequality and Growth: The Role of Human Capital with Heterogeneous Skills," IZA Discussion Papers 10090, Institute of Labor Economics (IZA).
    4. Zheng, Zhijie & Wan, Xi & Huang, Chien-Yu, 2023. "Inflation and income inequality in a Schumpeterian economy with heterogeneous wealth and skills," Economic Modelling, Elsevier, vol. 121(C).

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