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Growth and Inequality in a Small Open Economy

Author

Listed:
  • Yu-chin Chen

    (University of Washington)

  • Stephen J. Turnovsky

    (University of Washington)

Abstract
This paper analyzes the growth and inequality tradeoff for a small open economy where agents differ in their initial endowments of capital stock and international bond-holdings. Our analysis focuses on the distributional impacts of different structural shocks through their effects on agents’ relative wealth and their labor supply decisions. Supplementing the theoretical analysis with numerical simulations, we demonstrate that openness – access to an international capital market – has important consequences on the growth-inequality tradeoff. Specifically, the growth and distributional consequences of structural shocks depend crucially on whether the underlying heterogeneity originates with the initial endowment of domestic capital or foreign bonds.

Suggested Citation

  • Yu-chin Chen & Stephen J. Turnovsky, 2008. "Growth and Inequality in a Small Open Economy," Working Papers UWEC-2009-05-FC, University of Washington, Department of Economics, revised Nov 2009.
    • Handle: RePEc:udb:wpaper:uwec-2009-05-fc
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    File URL: http://faculty.washington.edu/yuchin/Papers/CT1.pdf
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    References listed on IDEAS

    as
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    Cited by:

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    2. Chu, Angus C. & Peng, Shin-Kun, 2011. "International intellectual property rights: Effects on growth, welfare and income inequality," Journal of Macroeconomics, Elsevier, vol. 33(2), pages 276-287, June.
    3. Masakazu Emoto & Tamotsu Nakamura, 2021. "Intertemporal elasticity of substitution and the transitional dynamics and steady state of wealth distribution," Discussion Papers 2101, Graduate School of Economics, Kobe University.
    4. Yasuhiro Nakamoto & Kazuo Mino & Yunfang Hu, 2024. "Preference Structures, Wealth Distribution, and Patterns of Trade in a Global Economy," KIER Working Papers 1105, Kyoto University, Institute of Economic Research.
    5. G. C. Lim & Paul D. McNelis, 2014. "Income Inequality, Trade and Financial Openness," Melbourne Institute Working Paper Series wp2014n07, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    6. Jung, Jae Wook & Kim, Kyunghun, 2021. "Financial Market Integration and Income Inequality," East Asian Economic Review, Korea Institute for International Economic Policy, vol. 25(2), pages 175-203, June.
    7. Lim, G.C. & McNelis, Paul D., 2016. "Income growth and inequality: The threshold effects of trade and financial openness," Economic Modelling, Elsevier, vol. 58(C), pages 403-412.

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