Income Inequality and Technical Change in European Union Neighbouring Developing Countries: A Calibration Exercise

An evolutionary two-sector model is used to study the impact of skilled-biased technological change on the growth and inequality paths of an economy. Different scenarios are presented that result from changes in a country’s structural conditions. Convergence to a high-growth steady state occurs when initial shortages in skill supply are not too large. This is more likely to occur for Europe New Member States than for other countries. However, a Kuznets dynamic with initial increasing inequality emerges in this case. Countries that are initially less equipped with skilled labour can fail to break out from the poverty trap. Gradualist strategies of convergence are shown to produce better results than ‘big bang ’ strategies