Inequality and growth: the dual role of human capital in development

To examine how human capital accumulation influences both economic growth a nd income inequality, we carefully endogenize the demand and supply of skil ls. We explicitly introduce the costs and externalities in education, and e xamine how both relate to learning-by-doing and R&D intensity. In addition, we endogenize the determinants of the skill-bias of labor demand: the comp lementarity between technology and skilled and unskilled labor. Our results identify parameters that are central to the evolution of inequality during the development process. We characterise development thresholds when count ries switch endogenously from pure learning to deliberate R&D, and we show that technical change can generate multiple steady states that are consiste nt with the cross-country data on inequality and skill-premia. (C) 2001 Els evier Science B.V. All rights reserved.