Economics Thesis Spotlight: Francesco G. Storm ’20

Storm's research investigates the evolving role of capital in the relationship between economic growth and inequality.

Headshot of Francesco Storm
Francesco Storm ’20

Name: Francesco G. Storm ’20

Majors: Economics & Political Science

Faculty mentor: Brandon J. Sheridan, assistant professor of economics

Title of research: Endogenous Capital Concentration: An analysis of inequality and growth

Abstract: Throughout the last 40 years, within-nation incomes have diverged staggeringly in the West. The degree to which this trend impacts growth has yet to be thoroughly examined. Using a merged panel dataset of the World Bank’s World Development Indicators (WDI) and Barro and Lee’s Educational Attainment survey, this paper scrutinizes Kuznets’ hypothesis of the relationship between income inequality and growth. In particular, this study introduces a concentration term to the capital stock component of neoclassical growth theory. Income inequality, conditional on gross capital stock, is examined as an indicator of growth patterns for over 100 countries between the years of 1960 and 2019. Using multivariate quantile regression analysis, findings suggest that the Gini coefficient plays a differential role in predicting output depending on a country’s position in the global capital distribution.

In other words: Recent trends in the West show incomes becoming more concentrated in the top decile, or ten percent of the income distribution. The share of national income that the highest-earning individuals hold has increased to the highest it’s been since the beginning of the 20th century; think of the concentrated wealth associated with the “Roaring Twenties.” My research delves into the ways this trend affects growth.

Man standing pointing to a graph on a screen.
Francesco Storm ’20 (mentor: Assistant Professor Brandon Sheridan) presented his research at the 2020 Eastern Economic Association Conference in Boston.

Explanation of study/potential impact of findings: Economists measure income inequality using what’s called the Gini index, named after the Italian statistician, Corrado Gini. The index measures the degree to which a given country’s total income is distributed among its citizens. A Gini coefficient of 100 means all the income in a country is received by one individual, while a coefficient of 0 denotes the distribution of income as perfectly uniform. In my research, I introduce the Gini coefficient to macroeconomic growth theory by interacting it with a country’s capital stock. Findings would have implications on the way economists currently view the relationship between income inequality and growth, as well as a potential target level of income inequality to maximize growth.

Why did you pick this topic?

The works of Thomas Piketty and Branko Milanović, which I’ve been studying since my first year at Elon, inspired me to take a deeper look into the dynamics of growth through the lens of political economy. There is so much we don’t know about the intersection of markets and states and my goal is to contribute to the literature in my full capacity.

How has your mentor impacted you/your research process?

Dr. Sheridan has been an incredible mentor. He’s found interesting literature to bolster my questions and claims, he’s talked with me for hours to help me conceptualize the dynamics of macroeconomics, and he’s contributed massively to my analytical dexterity by walking me through his own work. It’s hard to say there would be a paper at all without his help.