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GLOBAL POVERTY REDUCTION AND PARETO-IMPROVING REDISTRIBUTION

Published online by Cambridge University Press:  05 December 2011

Angus C. Chu
Angus C. Chu*
Affiliation:
Shanghai University of Finance and Economics and Institute of Economics, Academia Sinica
*
Address correspondence to: Angus C. Chu, School of Economics, Shanghai University of Finance and Economics, 777 Guoding Road, Shanghai 200433, China. E-mail: angusccc@gmail.com.
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Abstract

Can a transfer of wealth from the United States to the least developed countries be Pareto improving? We analyze this question in an open-economy R&D-based growth model, in which the high-income (low-income) country produces innovative (homogeneous) goods. We find that wealth redistribution to the low-income country simultaneously reduces global inequality and increases economic growth through an increase in labor supply in the high-income country. Given that the market equilibrium of R&D-based growth models is usually inefficient due to R&D externalities, the wealth redistribution may lead to a Pareto improvement, which occurs if the discount rate is sufficiently low or R&D productivity is sufficiently high.

Keywords

Economic GrowthR&DPareto-Improving Redistribution
Type
Articles
Information
Macroeconomic Dynamics , Volume 16 , Issue 4 , September 2012 , pp. 605 - 624
Copyright
Copyright © Cambridge University Press 2011

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