Assessment Of Relationship Between Growth And Inequality: Micro Evidence From Thailand

This paper shows that growth and income distribution dynamics are closely linked through occupation, financial intermediation, and education. We use micro data from Thailand for 1976–1996. The compositional changes across these characteristics account for half of the Thai inequality increase and 40% of the Thai growth and poverty reduction. Financial deepening and educational expansion contributed to increasing inequality, whereas occupational transformation contributed to poverty alleviation. The changes in income gaps across the income–status groups, that is, divergence and then convergence, give rise to inverted-U inequality dynamics. These two growth-related components of inequality dynamics, composition and income-gap dynamics, explain virtually all the change in overall inequality, except its initial rise. Thus, inequality dynamics can be viewed as an integral part of the wider process of growth, as Kuznets speculated.