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GROWTH AND INEQUALITY: MODEL EVALUATION BASED ON AN ESTIMATION-CALIBRATION STRATEGY

Published online by Cambridge University Press:  01 September 2008

Hyeok Jeong  and
Robert M. Townsend
Hyeok Jeong*
Affiliation:
University of Southern California
Robert M. Townsend
Affiliation:
University of Chicago
*
Address correspondence to: Hyeok Jeong, Department of Economics, University of Southern California, 3620 S. Vermont Ave., Kaprielian Hall Room 300, Los Angeles, CA 90089, USA; e-mail: hjeong@usc.edu.
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Abstract

This paper evaluates two well-known models of growth with inequality that have explicit micro underpinnings related to household choice. With incomplete markets or transactions costs, wealth can constrain investment in business and the choice of occupation and also constrain the timing of entry into the formal financial sector. Using the Thai Socio-Economic Survey (SES), we estimate the distribution of wealth and the key parameters that best fit cross-sectional data on household choices and wealth. We then simulate the model economies for two decades at the estimated initial wealth distribution and analyze whether the model economies at those micro-fit parameter estimates can explain the observed macro and sectoral aspects of income growth and inequality change. Both models capture important features of Thai reality. Anomalies and comparisons across the two distinct models yield specific suggestions for improved research on the micro foundations of growth and inequality.

Keywords

Growth and InequalityWealth-ConstraintsSelf-SelectionOccupational ChoiceFinancial Deepening
Type
Articles
Information
Macroeconomic Dynamics , Volume 12 , Supplement S2: Inequality , September 2008 , pp. 231 - 284
Copyright
Copyright © Cambridge University Press 2008

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