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Inequality of Opportunity and Economic Growth: How Much Can Cross‐Country Regressions Really Tell Us?

Author

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  • Francisco H. G. Ferreira
  • Christoph Lakner
  • Maria Ana Lugo
  • Berk Özler

Abstract

Income differences arise from many sources. While some kinds of inequality, caused by differential rewards to effort, might be associated with faster economic growth, other kinds, arising from unequal opportunities for investment, might be detrimental to economic progress. This study uses two new datasets, consisting of 117 income and expenditure household surveys and 134 Demographic and Health Surveys, to revisit the relationship between total inequality and economic growth. In particular, we ask whether inequality of opportunity, driven by circumstances at birth, has a negative effect on subsequent growth. Using the income and expenditure micro dataset, we find that while both total income inequality and inequality of opportunity are negatively associated with growth, the coefficient estimates are insignificant. The evidence is similarly equivocal using the Demographic and Health Surveys data. On balance, the data do not provide support for the hypothesis that inequality of opportunity is bad for growth.

Suggested Citation

  • Francisco H. G. Ferreira & Christoph Lakner & Maria Ana Lugo & Berk Özler, 2018. "Inequality of Opportunity and Economic Growth: How Much Can Cross‐Country Regressions Really Tell Us?," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 64(4), pages 800-827, December.
    • Handle: RePEc:bla:revinw:v:64:y:2018:i:4:p:800-827
    DOI: 10.1111/roiw.12311
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    Cited by:

    1. Paul Hufe & Andreas Peichl & Daniel Weishaar, 2022. "Lower and upper bound estimates of inequality of opportunity for emerging economies," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 58(3), pages 395-427, April.
    2. Neidhöfer, Guido & Serrano, Joaquín & Gasparini, Leonardo, 2018. "Educational inequality and intergenerational mobility in Latin America: A new database," Journal of Development Economics, Elsevier, vol. 134(C), pages 329-349.
    3. Paolo Brunori & Flaviana Palmisano & Vito Peragine, 2022. "Income taxation and equity: new dominance criteria with a microsimulation application," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 20(3), pages 509-536, September.
    4. Domenico Moramarco & Flaviana Palmisano & Vito Peragine, 2020. "Intertemporal inequality of opportunity," Working Papers 554, ECINEQ, Society for the Study of Economic Inequality.
    5. Guido Neidhöfer & Matías Ciaschi & Leonardo Gasparini & Joaquín Serrano, 2021. "Social Mobility and Economic Development: Evidence from a Panel of Latin American Regions," CEDLAS, Working Papers 0286, CEDLAS, Universidad Nacional de La Plata.
    6. Tetteh-Baah, Samuel Kofi & Günther, Isabel, 2020. "The impact of gender and ethnic discrimination on redistribution and productivity," VfS Annual Conference 2020 (Virtual Conference): Gender Economics 224633, Verein für Socialpolitik / German Economic Association.
    7. Z. F. Ibragimova & M. V. Frants, 2022. "Inequality of Opportunity: Unobserved Factors in Empirical Research," Studies on Russian Economic Development, Springer, vol. 33(3), pages 328-335, June.
    8. Banuri, Sheheryar & Nguyen, Ha, 2023. "Borrowing to keep up (with the Joneses): Inequality, debt, and conspicuous consumption," Journal of Economic Behavior & Organization, Elsevier, vol. 206(C), pages 222-242.
    9. Neidhöfer, Guido & Ciaschi, Matías & Gasparini, Leonardo & Serrano, Joaquín, 2021. "Social mobility and economic development," ZEW Discussion Papers 21-087, ZEW - Leibniz Centre for European Economic Research.
    10. Xavier Ramos & Dirk Van de gaer, 2021. "Is Inequality of Opportunity Robust to the Measurement Approach?," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 67(1), pages 18-36, March.
    11. Junjie Gao & Lyubing Feng & Xianguo Yao, 2021. "Information Transmission Mechanism of Inequality of Opportunity and Effort on Settlement Intention," Sustainability, MDPI, vol. 13(8), pages 1-17, April.
    12. Blotevogel, Robert & Imamoglu, Eslem & Moriyama, Kenji & Sarr, Babacar, 2022. "Income inequality measures and economic growth channels," Journal of Macroeconomics, Elsevier, vol. 72(C).
    13. Ms. Valerie Cerra & Mr. Ruy Lama & Norman Loayza, 2021. "Links Between Growth, Inequality, and Poverty: A Survey," IMF Working Papers 2021/068, International Monetary Fund.
    14. Stefano Filauro & Flaviana Palmisano & Vito Peragine, 2023. "The Evolution of Inequality of Opportunity in Europe," Working Papers 644, ECINEQ, Society for the Study of Economic Inequality.
    15. Rafael Carranza, 2020. "Inequality of Outcomes, Inequality of Opportunity, and Economic Growth," Working Papers 534, ECINEQ, Society for the Study of Economic Inequality.
    16. Kufenko, Vadim & Geloso, Vincent, 2021. "Who are the champions? Inequality, economic freedom and the Olympics," Journal of Institutional Economics, Cambridge University Press, vol. 17(3), pages 411-427, June.
    17. Guenther, Isabel & Tetteh-Baah, Samuel Kofi, 2019. "The impact of discrimination on redistributive preferences and productivity: experimental evidence from the United States," VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy 203652, Verein für Socialpolitik / German Economic Association.
    18. Gustavo A. Marrero & Juan Gabriel Rodríguez, 2019. "Inequality and growth: The cholesterol hypothesis," Working Papers 501, ECINEQ, Society for the Study of Economic Inequality.

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