THE PARADOX OF EDUCATION OR THE GOOD SIDE OF INEQUALITY

In this paper we argue that one of the mechanisms through which inequa lity may affect long-run growth is through individuals' education poss ibilities. The cost of education is therefore a crucial variable. We e ndogenize this cost and show that it will be high relative to average wealth in poor countries, and relatively low in rich countries. With t wo-tailed distributions of wealth, this is going to imply that greater inequality increases growth rates in poor economies, while it decreas es them in rich economies.