From Physical to Human Capital Accumulation: Inequality and the Process of Development

This lecture will provide an intertemporal reconciliation between the classical approach˚and the modern credit market imperfection approach for the study of the effect of inequality on economic growth. The proposed unified growth theory suggests that the classical viewpoint, regarding the positive effect of inequality on the process of development, reflects the state of the world in early stages of industrialization when physical capital accumulation was the prime engine of economic growth. In contrast, the credit market imperfection approach regarding the positive effect of equality on economic growth reflects later stages of development when human capital accumulation becomes a prime engine of economic growth, and credit constraints are largely binding. The lecture will be based on