Group-Based Human Capital Externalities and Inequality

In this chapter concerned with relationships between growth and groups. For instance, there are great differences in living conditions and income among different ethnic groups in the USA. Irrespective of numerous publications on growth and ethnics based on empirical research, there are only a few theoretical growth models which formally deal with interactions of ethnic human capital externalities, income and wealth distribution among groups and economic growth in a comprehensive framework. The chapter is to introduce group-based human capital externalities into an integrated Walrasian-general-equilibrium and neoclassical growth theory. The economy consists of any number of groups. The production side is neoclassical. The way that human-capital externalities are introduced is influenced by how production externalities are introduced in the literature of economic growth and spatial agglomeration. The chapter is organized as follows. Section 6.1 proposes the basic model with group-based human capital externalities and inequality. Section 6.2 shows the dynamics and its properties. Section 6.3 shows how the system reacts to a rise in group 1’s human capital externalities. Section 6.4 shows the effects of a rise in group 1’s population on the economic system. Section 6.5 studies the impact of a rise in group 1’s decreasing returns to scale in human capital accumulation. Section 6.6 shows how the system reacts to a rise in the consumer goods sector’s total factor productivity. Section 6.7 studies how a rise in group 1’s propensity to save affects the system. Section 6.8 concludes the chapter. The appendix confirms Lemma 6.1.