Economic Development and Intergenerational Economic Mobility

Abstract This paper examines theoretically how economic growth affects intergenera tionHl economic mobility. In the model developed in this paper, education is prov:lded to the individuals free of cost, and admission to sc11001s is competitive. The quantity ofeducational services available in any period depends on the total output of the economy in the same period. Individuals differ from each other in two respects. First, their innate mental abilities are determined by a stochastic process, and, second, their parents have different education levels. Individuals are admitted to schools based on their potential. An individual's potential is a function of her innate mental ability and her parent's education level. In this model, economic growth increases intergenerational economic mobility if and only if the effect of having an educated parent on an individual's poten tial if~ not large. Moreover, if the effect of having an educated parent is not large, then there exists a unique steadystateequilibrium and all economies will progress toward increased mobility. The model also shows that economic growth reduces the income difference between educated and uneducated labor if and only if the effect ofhaving an educated parent on an individual's potential is not large. And, althongh population growth reduces intergenerational economic mobility, techno logical progress increases it.