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Heterogeneity, Stratification, and Growth

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Roland Benabou

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Abstract

We examine how economic stratification affects inequality and growth over time. We study economies where heterogenous agents interact through local public goods or externalities (school funding, neighborhood effects) and economy-wide linkages (complementary skills. knowledge spillovers). We compare growth and welfare when families are stratified into homogeneous local communities and when they remain integrated. Segregation tends to minimize the losses from a given amount of heterogeneity, but integration reduces heterogeneity faster. Society may thus face an intertemporal tradeoff: mixing leads to slower growth in the short run, but to higher output or even productivity growth in the long run. This tradeoff occurs in particular when comparing local and national funding of education, which correspond to special cases of segregation and integration. More generally, we identify the key parameters which determine which structure is more efficient over short and long horizons. Particularly important are the degrees of complementarity in local and in global interactions.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4311.

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Date of creation: Sep 1996
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Publication status: published as modified title: "Heterogeneity, Stratification and Growth: Macroeconomicmplications of Community Structure and School Finance," American Economic Review, vol. 86, no. 3, pp. 584-609, June 1996.
Handle: RePEc:nbr:nberwo:4311

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Find related papers by JEL classification:
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
D62 - Microeconomics - - Welfare Economics - - - Externalities

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  1. Fernández, Raquel & Guner, Nezih & Knowles, John, 2001. "Love and Money: A Theoretical and Empirical Analysis of Household Sorting and Inequality," CEPR Discussion Papers 3040, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  2. Alberto Alesina & Eliana La Ferrara, 1999. "Participation in Heterogeneous Communities," NBER Working Papers 7155, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Raquel Fernandez & Richard Rogerson, 1994. "Income Distribution and Public Education: A Dynamic Quantitative Evaluation of School Finance Reform," NBER Working Papers 4883, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Patrick Bayer & Stephen L. Ross, 2006. "Identifying Individual and Group Effects in the Presence of Sorting: A Neighborhood Effects Application," Working papers 2006-13, University of Connecticut, Department of Economics. [Downloadable!]
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  5. Ann L. Owen & David N. Weil, 1997. "Intergenerational Earnings Mobility, Inequality, and Growth," NBER Working Papers 6070, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Michael Kremer, 1996. "How Much Does Sorting Increase Inequality?," NBER Working Papers 5566, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Esteban Rossi-Hansberg & Pierre-Daniel Sarte & Raymond Owens III, 2008. "Housing Externalities," NBER Working Papers 14369, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Joydeep Roy, 2004. "Effect of a School Finance Reform on Housing Stock and Residential Segregation: Evidence from Proposal A in Michigan," Public Economics 0412004, EconWPA. [Downloadable!]
  9. Francisco Martínez Mora, 2004. "The impact of fiscal decentralization on income segregation," Economic Working Papers at Centro de Estudios Andaluces E2004/68, Centro de Estudios Andaluces. [Downloadable!]
  10. Edward L. Glaeser & Jose Scheinkman, 2000. "Non-Market Interactions," NBER Working Papers 8053, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Raquel Fernandez & Richard Rogerson, 1995. "Education Finance Reform and Investment in Human Capital: Lessons from California," NBER Working Papers 5369, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  12. Esteban Rossi-Hansberg & Pierre-Daniel G. Sarte & Raymond E. Owens, III, 2008. "Housing externalities : evidence from spatially concentrated urban revitalization programs," Working Paper 08-03, Federal Reserve Bank of Richmond. [Downloadable!]
  13. Duncan Black & Vernon Henderson, 1997. "Urban Growth," NBER Working Papers 6008, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  14. H. Lloyd-Ellis, 1995. "Occupational Choice and the Growth-Inequality Relationship," Working Papers lloydell-95-02, University of Toronto, Department of Economics. [Downloadable!]
  15. Rajiv Sethi & Rohini Somanathan, 2001. "Inequality and Segregation," Microeconomics 0108005, EconWPA. [Downloadable!]
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  16. Yannis M. Ioannides, 1999. "Residential Neighborhood Effects," Discussion Papers Series, Department of Economics, Tufts University 9912, Department of Economics, Tufts University. [Downloadable!]
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  17. Maurizio Iacopetta, 2006. "Human Capital Dispersion and Incentives to Innovate," DEGIT Conference Papers c011_013, DEGIT, Dynamics, Economic Growth, and International Trade. [Downloadable!]
  18. Ryuichi Tanaka, 2004. "On the Costs and Benefits of a Mixed Educational Regime," Econometric Society 2004 Far Eastern Meetings 470, Econometric Society. [Downloadable!]
  19. Fernández, Raquel & Rogerson, Richard, 2000. "Sorting and Long-Run Inequality," CEPR Discussion Papers 2352, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  20. Fernández, Raquel, 2001. "Sorting, Education and Inequality," CEPR Discussion Papers 3020, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  21. Dustin Chambers, 2005. "Inequality and Growth: A Semiparametric Investigation," Computing in Economics and Finance 2005 132, Society for Computational Economics. [Downloadable!]
  22. Yannis Ioannides, 2001. "Interactive Property Valuations," Discussion Papers Series, Department of Economics, Tufts University 0102, Department of Economics, Tufts University. [Downloadable!]
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