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Wednesday 22 March 2006 14:15
N-3 ECO02 Increasing or decreasing inequality
Room N
Network: Economics Chair: Ulbe Bosma
Organizers: - Discussants: Joerg Baten, David Mitch
Peter Foldvari, Bas Van Leeuwen : Economic growth in three worlds: On the efficiency of human capital in the USA, Hungary and Indonesia
Human capital is a key concept of most new growth theories. Still very little is known about human capital, its formation, and its relationship with other social and economic factors. The lack of data on human capital is generally dealt with in the literature in three ways: by designing theoretical ... (Show more)
Human capital is a key concept of most new growth theories. Still very little is known about human capital, its formation, and its relationship with other social and economic factors. The lack of data on human capital is generally dealt with in the literature in three ways: by designing theoretical or empirical constructs that are supposed to eliminate the direct need for using data on human capital, the application of proxies like educational attainment, and finally by the reconstruction of human capital stocks from data intensive sources such as household surveys. The latter method is by far the most accurate. However, as it is also by far the most complicated and data intensive method, estimations of the human capital stock by these methods generally only cover a few years for only a few countries. In this study we offer a simple method that enables us to construct a human capital index for an extended period with relatively limited data requirements.
Based on these estimated human capital indices we look at the hotly debated question whether human capital causes growth. However, due to the longer time span of our data we are able to take a closer look at developments in this relation over time. In the literature it is often argued that the effect of human capital on economic growth declines when the stock of human capital increases (i.e. there are decreasing returns). This would mean that if the relation between human capital and economic growth is the same in all countries, the lower developed countries (with a lower stock of human capital) should have higher returns and thus experience stronger economic growth. However, recently some authors have also argued that inefficiency in the formation of human capital may cause lower returns to human capital (the so-called Pritchett-hypothesis), which might offer an explanation why developing countries may underperform even with a relatively large stock of human capital. We also address the efficiency of the government expenditure in the formation of human capital and how this efficiency influences the effect human capital has on economic growth. (Show less)

Ewout Frankema : The Double Income Gap: Relative sector and factor income shares in twentieth century Latin America
Recent economic literature on income distribution is dominated by regression studies in which partial explanations for income inequality prevail. Much of this literature is characterized by a short run focus (1970/1980-2000) and puts emphasis on temporal fluctuations in income distribution rather than interspatial comparisons reflecting persistent country-specific effects of structural ... (Show more)
Recent economic literature on income distribution is dominated by regression studies in which partial explanations for income inequality prevail. Much of this literature is characterized by a short run focus (1970/1980-2000) and puts emphasis on temporal fluctuations in income distribution rather than interspatial comparisons reflecting persistent country-specific effects of structural factors. Moreover, the intermediate channels via which explanatory variables act upon personal income distribution remain largely unobserved.
This paper attempts to relate the size distribution of income to its underlying functional income distribution for a selection of Latin American countries in the twentieth century, more specific the period 1900-1960. This approach does not focus on disentangling ultimate causes of inequality or weighing the relative effects of economic, institutional or cultural factors. In stead this approach investigates the proximate sources of inequality by exploring the relative shares of sectors, wages and capital income in countries’national income. Theoretically this approach fits into the tradition of Kuznets’ work on income distribution. The focal point is the relation between sector structure and income distribution, without paying attention however to the empirical demonstration of a potential Kuznets’curve. The basic idea behind this approach is that increased knowledge of the proximate sources of income inequality in the long run facilitates research on the ultimate causes of inequality.
The paper demonstrates that Latin American countries are characterized by certain “stylized facts” of the functional income distribution in comparison with other European and New World countries. In particular large differences in sectoral labour productivity and the relative small wage shares in national income are observed as typically Latin distributive facts. These functional income characteristics put the high levels of Latin American personal income inequality in a comparative perspective and nuance the perceived importance of wage differentials in explaining income inequality. (Show less)

Daan Marks : The service sector and economic growth in Indonesia from an international perspective
The service sector is often considered as tertiary, and sometimes even parasitic. At the beginning of the process of economic development, agriculture is the most important sector. Initially, with low levels of productivity, there is little if any surplus above the subsistence requirements, so that the economic activity of most ... (Show more)
The service sector is often considered as tertiary, and sometimes even parasitic. At the beginning of the process of economic development, agriculture is the most important sector. Initially, with low levels of productivity, there is little if any surplus above the subsistence requirements, so that the economic activity of most members of the society falls into the primary sector. As agricultural techniques improve, productivity rises and the size of the surplus grows. This enables the development of a manufacturing or ’secondary’ sector, producing both equipment and also consumer goods which satisfy some less basic needs over and above subsistence levels. As the wealth and productive potential of the society grows further, even more sophisticated needs are provided for by the service or tertiary sector. Along this line of reasoning the service sector is not so important in LDCs, since industrialisation has not taken place yet. This neglects, however, the fact that, in my opinion, the service sector plays a more important role in economic development. For example, without a well-functioning transport system, trade opportunities will be limited. And if trade opportunities are limited, this will discourage specialization and industrialization, which will hamper economic growth.
This paper will argue that a large service sector may be a necessary (but not sufficient) requirement for economic development. As in developing countries this sector is often smaller compared to developed countries, this may hinder their economic growth. The paper will especially focus on the service sector in Indonesia and will compare it with the service sector in more developed countries. (Show less)

Jan-Pieter Smits : Exploring international differences in economic performance from a “social capital” perspective: 1910-2000
Why are the rich countries rich and the poor countries poor? This paper aims to provide new building blocks to study this problem. On the basis of newly constructed data (historical national accounts) and using an innovative framework (based on social capital), the old question regarding the divergence between the ... (Show more)
Why are the rich countries rich and the poor countries poor? This paper aims to provide new building blocks to study this problem. On the basis of newly constructed data (historical national accounts) and using an innovative framework (based on social capital), the old question regarding the divergence between the west and the rest will be reconsidered.
Lately, economists have started to follow the path set out by historians and social scientists to include factors such as institutions and culture in their analysis. In this paper cultural and institutional characteristics are captured by the concept social capital. This concept focuses on the way in which people interact, and the extent to which they invest in social networks. Using a broad capital concept the question is raised to what extent differences in growth performance between various regions of the world economy can be ascribed to low levels of capital accumulation in general, and of social capital in particular. Besides, the question will be raised how differences in the levels of social capital formation in the less developed economies in comparison with high income countries can be explained. (Show less)



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