Discussion Paper Details

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Title: Heterogeneity, Stratification and Growth

Author(s): Roland Bénabou

Publication Date: August 1993

Keyword(s): Education, Externalities, Growth, Human Capital, Inequality and Stratification

Programme Area(s): International Macroeconomics

Abstract: This paper examines how economic stratification affects inequality and growth over time. It studies economies where heterogenous agents interact through local public goods or externalities (school funding, neighbourhood effects) and economy-wide linkages (complementary skills, knowledge spillovers). It compares growth and welfare when families are stratified into homogeneous local communities and when they remain integrated. Segregation tends to minimize the losses from a given amount of heterogeneity, but integration reduces heterogeneity faster. Society may thus face an intertemporal trade-off: mixing leads to slower growth in the short run, but to higher output or even productivity growth in the long run. This trade-off occurs in particular when comparing local and national funding of education, which correspond to special cases of segregation and integration. More generally, the paper identifies the key parameters which determine which structure is more efficient over short and long horizons. Particularly important are the degrees of complementarity in local and in global interactions.

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Bibliographic Reference

Bénabou, R. 1993. 'Heterogeneity, Stratification and Growth'. London, Centre for Economic Policy Research.