Global poverty reduction and Pareto-improving redistribution

Chu, Angus C. (2009): Global poverty reduction and Pareto-improving redistribution.

Abstract

Can a transfer of wealth from the US to least developed countries be Pareto improving? We analyze this question in an open-economy innovation-driven growth model, in which the high-income (low-income) country produces innovative (homogenous) goods. We find that wealth redistribution to the low-income country simultaneously reduces global inequality and stimulates innovation through an increase in labor supply in the high-income country. Given that the market equilibrium of R&D-growth models is usually inefficient due to R&D externalities, the wealth redistribution may lead to a Pareto improvement, which occurs if the discount rate is sufficiently low or R&D productivity is sufficiently high.

• Item Type: MPRA Paper
• Language: English
• Keywords: innovation-driven growth; wealth redistribution; Pareto improvement
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O41 - One, Two, and Multisector Growth Models; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O31 - Innovation and Invention: Processes and Incentives; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F43 - Economic Growth of Open Economies

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