Daniel Tsiddon

The Distribution of Human Capital and Economic Growth

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.

The Behavior of Prices and Inflation: An Empirical Analysis of Disaggregated Price Data

This paper analyzes the effects of inflation on the dispersion of prices, as well as other aspects of price behavior, using disaggregated data on prices of foodstuffs in Israel during 1978-84. We find that the effect of expected inflation on intramarket price variability is stronger than the effect of unexpected inflation. We show that even in times of high inflation, price quotations are not trivially short and price changes are not synchronized across firms. These facts, taken together, confirm that there is some staggering in the setting of prices. We find that the distribution of real prices is far from being uniform, as many menu cost-based models assume or conclude. In fact, as inflation increases to very high levels, this distribution is not even symmetric. When the annual inflation rate reaches 130 percent, there are equal chances of finding real prices above or below the market average, but upward deviations in the real price are further away from zero than downward ones. Furthermore, as the annual rate of inflation more than doubles from 60 to 130 percent, real prices are pushed toward both tails of the distribution.

Demographic Transition, Income Distribution, and Economic Growth

This article investigates the dynamic interactions among demographic transition, income distribution, and economic growth. Consistent with empirical evidence we show that fertility and income distribution follow an inverted U-shaped dynamics in the process of economic development. In the first stage fertility increases and income inequality widens, whereas in the second stage fertility declines, income becomes more equally distributed, human capital becomes more abundant, and growth of income per capita takes off. The model therefore generates the documented facts about epochs of demographic transition, relying neither on arguments based on “near rationality” nor on noneconomic objectives.

Income Distribution and Growth: The Kuznets Hypothesis Revisited

This study develops a general equilibrium model in which the evolution of income inequality and output conforms with the Kuznets hypothesis. The paper presents a novel endogenous mechanism that generates the inverted-U relation between income inequality and per capita output, and captures the reciprocal influence between the two. Unlike previous attempts for a comprehensive theoretical modeling of this phenomenon, the evolution of the economy is consistent with another important empirical observation: namely, that output growth is accompanied in the early stages of development by a widening wage differential between skilled and unskilled labor, whereas in a later stage this wage differential declines. Copyright 1996 by The London School of Economics and Political Science.

A Moral Hazard Trap to Growth

This paper studies the consequences of asymmetric information in the investment sector upon economic growth. In this paper, the information asymmetry generates a moral hazard problem. This moral hazard problem restricts financial arrangements. It is shown that these restrictions make even the long-run competitive equilibrium income dependent upon history. This result also holds in case there is perfect capital mobility. However, when there is capital mobility, the government may be able to intervene in a Pareto improving way. Copyright 1992 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Economic growth, leadership and capital flows: the leapfrogging effect

The leapfrogging effect has been analysed in a model without capital. However, history has shown numerous cases in which countries lost economic leadership at the same time as they were exporting capital. This work focuses on the interaction between international capital flows, economic growth and the transmission of leadership. We show that capital mobility is at the heart of the adoption of new technologies. Malfunctioning international capital markets that prevent capital imports may delay adoption of the new technology by the lagging country and may postpone or even prevent leapfrogging that would have occurred in the case of free flows of capital. The model shows that capital mobility smooths passing the baton in the relay race for economic leadership.

Technological breakthroughs and development traps

Abstract This paper attempts to explain why countries which maintain identical economic conditions at different points in time do not necessarily enjoy a similar path of output growth thereafter. The paper develops a simple model where timing is a significant element of economic growth. The analysis indicates that despite the fact that the steady-state equilibrium in a ‘leading’ country is unique, equilibrium in a country that lags behind may be path dependent. A technological progress in the advanced country presents a choice of technology in the ‘following’ country that affects its dynamic evolution and may trap the economy in a lower steady-state equilibrium.

Transitory Productivity Shocks and Long-Run Output

This paper analyzes the effects of transitory productivity shocks on long-run output. The study demonstrates that, despite it transitory nature, an adverse productivity shock may result in lower long-run output. A fall in productivity reduces output and savings and, consequently, the interest rate increases and investment in human capital falls. Although productivity returns to its initial level, a sufficiently large reduction in investment pushes the economy to a new stationary equilibrium with lower output. A redistribution of income from consumers to savers may restore the initial long-run output. Copyright 1992 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Inflation, Nominal Interest Rates, and the Variability of Output

This paper examines the distribution of output around capacity when money demand is a nonlinear function of the nominal interest rate such that nominal interest rates cannot become negative. When fluctuations in output result primarily from disturbances to the money market, the variance of output is shown to be an increasing function of the trend inflation rate. When they result from disturbances to the goods market, the variance of output is a decreasing function of the trend inflation rate. When both disturbances are significant, there exists, in general, a critical non-zero trend inflation rate that minimizes the variance of output.