The Distribution of Human Capital and Economic Growth

Abstract

This paper analyzes the interaction between the distributionof human capital, technological progress, and economic growth.It argues that the composition of human capital is an importantfactor in the determination of the pattern of economic development.The study demonstrates that the evolutionary pattern of the humancapital distribution, the income distribution, and economic growthare determined simultaneously by the interplay between a local home environment externality and a global technologicalexternality. In early stages of development the local home environmentexternality is the dominating factor and hence the distributionof income becomes polarized; whereas in mature stages of developmentthe global technological externality dominates and the distributionof income ultimately contracts. Polarization, in early stagesof development may be a necessary ingredient for future economicgrowth. An economy that prematurely implements a policy designedto enhance equality may be trapped at a low stage of development.An underdeveloped economy, which values equality as well as prosperity,may confront a trade-off between equality in the short-run followedby equality and stagnation in the long-run, and inequality inthe short-run followed by equality and prosperity in the longrun.