On optimal long-term relationship between TFP, institutions, and income inequality under embodied technical progress

Raul Fuentes; Tapas Mishra; Javier Scavia; Mamata Parhi

doi:10.1016/j.strueco.2014.08.003

On optimal long-term relationship between TFP, institutions, and income inequality under embodied technical progress

Raul Fuentes, Tapas Mishra, Javier Scavia, Mamata Parhi

Research output: Contribution to journal › Article

Abstract

We develop a simple optimal catch-up model under embodiment to study the potential long term dynamic relationship between total factor productivity (TFP), institutional quality, and income inequality in the context of a developing economy. Assuming a proactive role of institution in the persistence of TFP and minimum inequality spread for social optimum, we quantify the extent to which embodiment characteristics determine the long-term dynamics among these factors. It is shown that the amelioration (deterioration) of institutional quality influences skilled labour mobility across sectors (in developing economies) thereby decreasing (increasing) long term income inequality. Long run scenarios are built using our model in which the production sophistication of the economy under embodiment is shown to be compatible with both better institutions and less income inequality. Quantile regression results for a sample of 27 developing countries over 1990-2010 provide broad support to the theoretical predictions. In particular, it is found that - along the distribution path of embodied technical progress - there is heterogeneous response of productivity growth to the inequality spread and innovation intensity. Our results have interesting policy implications. (C) 2014 Elsevier B.V. All rights reserved.

Original language	English
Pages (from-to)	89-100
Journal	STRUCTURAL CHANGE AND ECONOMIC DYNAMICS
Volume	31
DOIs	https://doi.org/10.1016/j.strueco.2014.08.003
Publication status	Published - 2014

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10.1016/j.strueco.2014.08.003

http://dx.doi.org/10.1016/j.strueco.2014.08.003

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@article{a11a217d788d478da6c8294e73f5f79d,

title = "On optimal long-term relationship between TFP, institutions, and income inequality under embodied technical progress",

abstract = "We develop a simple optimal catch-up model under embodiment to study the potential long term dynamic relationship between total factor productivity (TFP), institutional quality, and income inequality in the context of a developing economy. Assuming a proactive role of institution in the persistence of TFP and minimum inequality spread for social optimum, we quantify the extent to which embodiment characteristics determine the long-term dynamics among these factors. It is shown that the amelioration (deterioration) of institutional quality influences skilled labour mobility across sectors (in developing economies) thereby decreasing (increasing) long term income inequality. Long run scenarios are built using our model in which the production sophistication of the economy under embodiment is shown to be compatible with both better institutions and less income inequality. Quantile regression results for a sample of 27 developing countries over 1990-2010 provide broad support to the theoretical predictions. In particular, it is found that - along the distribution path of embodied technical progress - there is heterogeneous response of productivity growth to the inequality spread and innovation intensity. Our results have interesting policy implications. (C) 2014 Elsevier B.V. All rights reserved.",

author = "Raul Fuentes and Tapas Mishra and Javier Scavia and Mamata Parhi",

year = "2014",

doi = "10.1016/j.strueco.2014.08.003",

language = "English",

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T1 - On optimal long-term relationship between TFP, institutions, and income inequality under embodied technical progress

AU - Fuentes, Raul

AU - Mishra, Tapas

AU - Scavia, Javier

AU - Parhi, Mamata

PY - 2014

Y1 - 2014

N2 - We develop a simple optimal catch-up model under embodiment to study the potential long term dynamic relationship between total factor productivity (TFP), institutional quality, and income inequality in the context of a developing economy. Assuming a proactive role of institution in the persistence of TFP and minimum inequality spread for social optimum, we quantify the extent to which embodiment characteristics determine the long-term dynamics among these factors. It is shown that the amelioration (deterioration) of institutional quality influences skilled labour mobility across sectors (in developing economies) thereby decreasing (increasing) long term income inequality. Long run scenarios are built using our model in which the production sophistication of the economy under embodiment is shown to be compatible with both better institutions and less income inequality. Quantile regression results for a sample of 27 developing countries over 1990-2010 provide broad support to the theoretical predictions. In particular, it is found that - along the distribution path of embodied technical progress - there is heterogeneous response of productivity growth to the inequality spread and innovation intensity. Our results have interesting policy implications. (C) 2014 Elsevier B.V. All rights reserved.

AB - We develop a simple optimal catch-up model under embodiment to study the potential long term dynamic relationship between total factor productivity (TFP), institutional quality, and income inequality in the context of a developing economy. Assuming a proactive role of institution in the persistence of TFP and minimum inequality spread for social optimum, we quantify the extent to which embodiment characteristics determine the long-term dynamics among these factors. It is shown that the amelioration (deterioration) of institutional quality influences skilled labour mobility across sectors (in developing economies) thereby decreasing (increasing) long term income inequality. Long run scenarios are built using our model in which the production sophistication of the economy under embodiment is shown to be compatible with both better institutions and less income inequality. Quantile regression results for a sample of 27 developing countries over 1990-2010 provide broad support to the theoretical predictions. In particular, it is found that - along the distribution path of embodied technical progress - there is heterogeneous response of productivity growth to the inequality spread and innovation intensity. Our results have interesting policy implications. (C) 2014 Elsevier B.V. All rights reserved.

U2 - 10.1016/j.strueco.2014.08.003

DO - 10.1016/j.strueco.2014.08.003

M3 - Article

SN - 0954-349X

VL - 31

SP - 89

EP - 100

JO - STRUCTURAL CHANGE AND ECONOMIC DYNAMICS

JF - STRUCTURAL CHANGE AND ECONOMIC DYNAMICS

ER -