From Human Capital to Technology : The Process of Development and the Implication of Inequality

This paper aims to explain the nonlinear effect of inequality on economic growth, that income inequality promotes economic growth in rich countries while reducing economic growth in emerging countries. We developed a model where the effect of inequality on output growth alters under different regimes and illustrated how such a model can explain the non-linearity of inequality's effect. The model shows that, in the short term, when the aggregate ex-ante wealth level is low, the economy falls into a regime characterized by low technology expenditure ratio and a negative impact of inequality on output (growth). When the aggregate ex-ante wealth level is high, the economy falls into a regime characterized by high technology expenditure ratio and a positive impact of inequality on output (growth)