DP10235 Growth, Trade, and Inequality

Author(s): Gene Grossman, Elhanan Helpman
Publication Date: November 2014
Keyword(s): endogenous growth, income distribution, income inequality, innovation, trade and growth
JEL(s): D33, F12, F16, O41
Programme Areas: International Macroeconomics, International Trade and Regional Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=10235

We introduce firm and worker heterogeneity into a model of innovation-driven endogenous growth. Individuals who differ in ability sort into either a research sector or a manufacturing sector that produces differentiated goods. Each research project generates a new variety of the differentiated product and a random technology for producing it. Technologies differ in complexity and productivity, and technological sophistication is complementary to worker ability. We study the co-determination of growth and income inequality in both the closed and open economy, as well as the spillover effects of policy and conditions in one country to outcomes in others.