Factor Shares, Income Distribution and Capital Flows

We present an endogenous growth model where innovations are factor-saving and model the choice of technologies in an Overlapping Generations Model where any technology can be adopted paying a cost. Markets are competitive and marginal productivity of factors determines factor prices; therefore, the income share of reproducible factors increases with the stage of development. Beyond the standard results of this type of model we find that (i) In poor economies technological change may reduce future income, (ii) without bequests long run growth is not possible, (iii) if the economy presents long run growth then intra generation inequality may last forever but if the economy does not present long run growth then in steady state there is no intra generation inequality (iv) when the economy is open the pattern of capital flows depends not only on the relative abundance of factors but also on the technologies and, for this reason, capital may not flow from rich to poor economies (v) consequently, capital flows may not help to break poverty traps.