Working Paper: CEPR ID: DP815
Authors: Roland Benabou
Abstract: This paper examines how economic stratification affects inequality and growth over time. It studies economies where heterogenous agents interact through local public goods or externalities (school funding, neighbourhood effects) and economy-wide linkages (complementary skills, knowledge spillovers). It compares growth and welfare when families are stratified into homogeneous local communities and when they remain integrated. Segregation tends to minimize the losses from a given amount of heterogeneity, but integration reduces heterogeneity faster. Society may thus face an intertemporal trade-off: mixing leads to slower growth in the short run, but to higher output or even productivity growth in the long run. This trade-off occurs in particular when comparing local and national funding of education, which correspond to special cases of segregation and integration. More generally, the paper identifies the key parameters which determine which structure is more efficient over short and long horizons. Particularly important are the degrees of complementarity in local and in global interactions.
Keywords: growth; human capital; education; stratification; inequality; externalities
JEL Codes: D26; J24; O41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| segregation (Y40) | faster growth (O49) |
| integration (F15) | long-run efficiency (D61) |
| integration (F15) | equitable distribution of skills and income (D30) |
| integration (F15) | everyone's income (D31) |
| segregation (Y40) | widening income distribution (D31) |
| segregation (Y40) | short-lived growth burst (O41) |
| segregation (Y40) | decline in long-term output levels (E23) |
| strength of complementarity (D10) | relative efficiency of segregation vs integration (R28) |