Equity and growth in developing countries : old and new perspectives on the policy issues
AbstractThe"stylized fact"that distribution must get worse with economic growth in poor countries before it can get better turns out not to be a fact at all. Growth's effects on inequality can go either way and are contingent on several other factors. The authors found no sign in the new cross-country data they assembled that growth has any systematic impact on inequality. Possibly measurement errors confound the true relationship, but they think it more likely that the relationship between growth and distribution is not as simple as some theories have held. Since distribution does not worsen, growth reduces absolute poverty. Indeed, absolute poverty measures typically respond quite elastically to growth, and the benefits are certainly not confined to those near typical poverty lines. Of course, one cannot say that growth always benefits the poor or that none of the poor lose from pro-growth policy reform. Only aggregate effects are studied. But for 17 of the 20 countries for which they assemble quite good data (from at least two surveys since the mid-1980s), the mean and the proportion of people living below $1 a day moved in opposite directions. The gains to poor people from a distribution-neutral growth process will tend to be lower, the higher the extent of initial inequality. A smaller share of total income must imply a smaller absolute gain from a given increment to total income. Compensatory direct interventions can be important, provided they are integrated into a framework of fiscal and monetary discipline. The evidence does not suggest that growth is always distribution-neutral, and it would be wrong to conclude that changes in distribution are of little consequence. The point is not that distribution is irrelevant or that it never changes, but that its changes are roughly uncorrelated with economic growth. There is no intrinsic tradeoff between long-run aggregate efficiency and overall equity. Policies aimed at helping the poor accumulate productive assets--especially policies to improve schooling, health, and nutrition--when adopted in a relatively nondistorted framework, are important instruments for achieving higher growth.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 1563.
Date of creation: 31 Jan 1996
Date of revision:
Services&Transfers to Poor; Environmental Economics&Policies; Economic Conditions and Volatility; Health Monitoring&Evaluation; Public Health Promotion; Achieving Shared Growth; Inequality; Governance Indicators; Safety Nets and Transfers; Rural Poverty Reduction;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Banerjee, Abhijit V & Newman, Andrew F, 1993.
"Occupational Choice and the Process of Development,"
Journal of Political Economy,
University of Chicago Press, vol. 101(2), pages 274-98, April.
- Abhijit V. Banerjee & Andrew F. Newman, 1990. "Occupational Choice and the Process of Development," Discussion Papers 911, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Tsiddon, Daniel, 1992. "A Moral Hazard Trap to Growth," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(2), pages 299-321, May.
- Michael Bruno & William Easterly, 1995.
"Inflation Crises and Long-Run Growth,"
NBER Working Papers
5209, National Bureau of Economic Research, Inc.
- Karla Hoff & Andrew B. Lyon, 1994.
"Non-Leaky Buckets: Optimal Redistributive Taxation and Agency Costs,"
NBER Working Papers
4652, National Bureau of Economic Research, Inc.
- Hoff, Karla & Lyon, Andrew B., 1995. "Non-leaky buckets: Optimal redistributive taxation and agency costs," Journal of Public Economics, Elsevier, vol. 58(3), pages 365-390, November.
- Ahluwalia, Montek S, 1976. "Income Distribution and Development: Some Stylized Facts," American Economic Review, American Economic Association, vol. 66(2), pages 128-35, May.
- Kakwani, Nanak, 1987. "Inequality of income derived from survey data during the inflationary period," Economics Letters, Elsevier, vol. 23(4), pages 387-388.
- Hoff, Karla, 1994. "The second theorem of the second best," Journal of Public Economics, Elsevier, vol. 54(2), pages 223-242, June.
- Satyajit Chatterjee, 1991. "The effect of transitional dynamics on the distribution of wealth in a neoclassical capital accumulation model," Working Papers 91-22, Federal Reserve Bank of Philadelphia.
- Bencivenga, V.R. & Smith, B.D., 1988.
"Financial Intermediation And Endogenous Growth,"
RCER Working Papers
124, University of Rochester - Center for Economic Research (RCER).
- Bidani, Benu & Ravallion, Martin, 1995.
"Decomposing social indicators using distributional data,"
Policy Research Working Paper Series
1487, The World Bank.
- Bidani, Benu & Ravallion, Martin, 1997. "Decomposing social indicators using distributional data," Journal of Econometrics, Elsevier, vol. 77(1), pages 125-139, March.
- Lipton, Michael & Ravallion, Martin, 1995.
"Poverty and policy,"
Handbook of Development Economics,
in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 3, chapter 41, pages 2551-2657
- Zvi Eckstein & Itzhak Zilcha, 1991.
"The Effects of Compulsory Schooling on Growth, Income Distribution and Welfare,"
Boston University - Institute for Economic Development
20, Boston University, Institute for Economic Development.
- Eckstein, Zvi & Zilcha, Itzhak, 1994. "The effects of compulsory schooling on growth, income distribution and welfare," Journal of Public Economics, Elsevier, vol. 54(3), pages 339-359, July.
- Eckstein, Z. & Zilcha, I., 1991. "The Effects of Compulsury Schooling on Growth Income Distribution and Welfare," Papers 38-91, Tel Aviv.
- Anand, Sudhir & Kanbur, S. M. R., 1993. "The Kuznets process and the inequality--development relationship," Journal of Development Economics, Elsevier, vol. 40(1), pages 25-52, February.
- Braillard, S. Lael & Verdier, Thierry, 1994. "Lobbying and adjustment in declining industries," European Economic Review, Elsevier, vol. 38(3-4), pages 586-595, April.
- Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-66, May.
- Chen, Shaohua & Datt, Gaurav & Ravallion, Martin, 1994.
"Is Poverty Increasing in the Developing World?,"
Review of Income and Wealth,
International Association for Research in Income and Wealth, vol. 40(4), pages 359-76, December.
- Ravallion, Martin & Datt, Gaurav, 1996. "How Important to India's Poor Is the Sectoral Composition of Economic Growth?," World Bank Economic Review, World Bank Group, vol. 10(1), pages 1-25, January.
- Fields, Gary S, 1989. "Changes in Poverty and Inequality in Developing Countries," World Bank Research Observer, World Bank Group, vol. 4(2), pages 167-85, July.
- Milanovic, Branko, 1995. "Poverty, inequality, and social policy in transition economies," Policy Research Working Paper Series 1530, The World Bank.
- Alesina, Alberto & Drazen, Allan, 1991.
"Why Are Stabilizations Delayed?,"
American Economic Review,
American Economic Association, vol. 81(5), pages 1170-88, December.
- Papanek, Gustav F. & Kyn, Oldrich, 1986. "The effect on income distribution of development, the growth rate and economic strategy," Journal of Development Economics, Elsevier, vol. 23(1), pages 55-65, September.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi).
If references are entirely missing, you can add them using this form.