RESEARCH PAPER NO. 841

INEQUALITY AND GROWTH: NON-MONOTONIC EFFECTS VIA EDUCATION AND FERTILITY

BY

AKIHITO ASANO

MARCH 2002

Department of Economics. University of Melbourne. Melbourne Victoria 3010 Australia

ABSTRACT

This paper examines the effect of inequality upon economic growth. Much of the existing empirical literature has found a negative effect of inequality upon long run growth. In contrast, our theoretical model, in which heterogeneous individuals jointly determine the levels of investment in human capital and fertility, predicts that the effects of inequality upon growth is non-monotonic: inequality impedes growth in low fertility economies, but fosters growth in high fertility economies. We provide empirical support for this prediction by estimating a system of equations to which growth, investment in human capital, and fertility are endogenous.

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