HUMAN CAPITAL INEQUALITY AND ECONOMIC GROWTH.pdf

HUMAN CAPITAL INEQUALITY AND ECONOMIC GROWTH: SOME NEW EVIDENCE* Amparo Castello? and Rafael Dome?nech This paper provides new measures of human capital inequality for a broad panel of countries. Taking attainment levels from Barro and Lee (2001), we compute Gini coef?cients and the distribution of education by quintiles for 108 countries over ?ve-year intervals from 1960 to 2000. Using this new cross-country data on human capital inequality two main conclusions are obtained. First, most countries in the world have tended to reduce the inequality in human capital distribution. Second, human capital inequality measures provide more robust results than income inequality measures in the estimation of standard growth and investment equa- tions. How is inequality generated? How does inequality evolve over time? How does inequality inˉuence other variables such as economic growth? Numerous re- searchers have tried to answer these questions over the years. Initially, economists paid attention to factors that determine income inequality as, for example, in the inˉuential work of Kuznets (1955), who analysed the effects of economic devel- opment upon the evolution of the distribution of income. In contrast, more recent literature addresses the question of how income or wealth distribution affects the growth of income, that is, it focuses on the potential effects of inequality on economic growth through different channels.1 In spite of the distribution of wealth being the relevant inequality source in theoretical models, the scarcity of available data on the distribution of wealth for a broad number of countries and for suf?ciently long periods leads most empirical studies to use income inequality data as a proxy for wealth inequality.2 On other occasions, the distribution of wealth is proxied by the distribution of land. For example, Alesina and Rodrik (1994) and Deininger and Squire (1998) include land inequality along with income inequality to analyse the relationship betw