Income Distribution, Poverty Trap and Economic Growth

The post-war growth experiences of developing countries lead to the idea that income equality may accelerate economic growth. In this paper, a theoretical model showed the possibility that equality makes a country human-capital abundant, which enables industrialization and higher economic growth. On the other hand, in unequal developing countries where majority of people manage to survive at minimum consumption level, human capital investment such as schooling cannot be done. Such countries become unskilled labor abundant and suffer further from low economic growth. In addition, the two-good framework showed the possibility that protecting infant industry with dynamic externality enhances economic growth.