Income Inequality, TFP, and Human Capital

A fruitful recent theoretical literature has related human capital and technological development with income (and wages) inequality. However, empirical assessments on the relationship are still scarce. We relate human capital and total factor productivity (TFP) with inequality and discover that, when countries are assumed as heterogeneous and dependent cross-sections, human capital is the most robust determinant of inequality, contributing to increase inequality, as predicted by theory. There is evidence of great heterogeneity on the effects of TFP and Openness across countries. These new empirical results open a wide avenue for theoretical research on the country-specific features conditioning the causal relationship from human capital, technology and trade to inequality.