A Study of the Relationships between Human Capital Accumulation and Income Distribution in Iran

Theorethical explaination and experimental tests of the relations of macro economic variables and income distribution is critical issue for policy makers and economic planners particularly in developing countries. Accumulation of human and social capital are keys elements of economic growth and so they might influence the distribution of income. Accumulation of human capital depends on both internal and external parameters. Many argue that accumulation of human and social capital have positive social externalities. They substantially increase the ability of individuals and firms. Thus accumulation of human and social capital might augment the economic growth and consequently reduce the income inequality. This research attempts to survey the relations between income distribution human capital social capitals economic growth and inflation in Iran for the period of 1959-2007. This paper analyzes the relations between human cap it al social capital economic growth price inflation and income inequality during 1959 to 2007 by the help of five steps cointegration approach of Jo hansson and Vector Error Correction Model (VECM). Paper's results show that in the long term an increase in human capital accumulation and social capital accumulation reduce significantly income inequality of Iran. While the economic growth and price inflation increase significantly income inequality. In addition, in long run Islamic revolution has reduced the income inequality while the imposed war has had a significant negative effect on it. Finally in the long term accumulation of human capital has had the most important effect on improving equality of income of the country.