Journal Article

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

Oded Galor and Omer Moav

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 71, issue 4, pages 1001-1026
Published in print October 2004 | ISSN: 0034-6527
Published online October 2004 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/0034-6527.00312
From Physical to Human Capital Accumulation: Inequality and the Process of Development

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  • Demand and Supply of Labour
  • Macroeconomics: Consumption, Saving, Production, Employment, and Investment
  • Economic Development

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This paper develops a growth theory that captures the replacement of physical capital accumulation by human capital accumulation as a prime engine of growth along the process of development. It argues that the positive impact of inequality on the growth process was reversed in this process. In early stages of the Industrial Revolution, when physical capital accumulation was the prime source of growth, inequality stimulated development by channelling resources towards individuals with a higher propensity to save. As human capital emerged as a growth engine, equality alleviated adverse effects of credit constraints on human capital accumulation, stimulating the growth process.

Keywords: E22; J24; O11; O15

Journal Article.  12800 words.  Illustrated.

Subjects: Demand and Supply of Labour ; Macroeconomics: Consumption, Saving, Production, Employment, and Investment ; Economic Development

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