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Did growth become less pro-poor in the 1990s ?

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  • Lopez, Humberto

Abstract

The author analyzes the stability of the empirical relationship between growth and changes in inequality over time. He concludes that while during the 1970s and 1980s the growth process was not accompanied by increases in inequality, during the 1990s a positive and significant correlation appears in the data. For this decade, he estimates that a 1 percent growth rate would be associated with an increase in the gini coefficient of between .3 to .5 percent. This positive correlation is hidden when one estimates the model without allowing for changes in the relationship over the different decades. The finding is robust to a number of departures from the basic specification including: (1) the use of alternative specifications to isolate decadal shifts; (2) the use of robust estimation techniques that address the potential influence of outliers; (3) restricting the sample to a balanced panel for the 1980s and 1990s to control for changes in the composition of the sample related to the unbalanced nature of the panel; and (4) considering the possibility of fixed effects in the data. The author also explores the impact of this structural change in the rate of poverty reduction and concludes that it is far from negligible.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3931.

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Date of creation: 01 Jun 2006
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Handle: RePEc:wbk:wbrwps:3931

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Keywords: Achieving Shared Growth; Inequality; Services&Transfers to Poor; Poverty Impact Evaluation; Economic Growth;

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References

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  1. Dollar, David & Kraay, Aart, 2001. "Growth is good for the poor," Policy Research Working Paper Series 2587, The World Bank.
  2. Abhijit V. Banerjee & Esther Duflo, 2000. "Inequality and Growth: What Can the Data Say?," NBER Working Papers 7793, National Bureau of Economic Research, Inc.
  3. Ravallion, Martin & Chen, Shaohua, 1997. "What Can New Survey Data Tell Us about Recent Changes in Distribution and Poverty?," World Bank Economic Review, World Bank Group, World Bank Group, vol. 11(2), pages 357-82, May.
  4. Lopez, Humberto & Serven, Luis, 2006. "A normal relationship ? Poverty, growth, and inequality," Policy Research Working Paper Series 3814, The World Bank.
  5. Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, Econometric Society, vol. 52(3), pages 761-66, May.
  6. Kristin J. Forbes, 2000. "A Reassessment of the Relationship between Inequality and Growth," American Economic Review, American Economic Association, American Economic Association, vol. 90(4), pages 869-887, September.
  7. Klaus Deininger & Lyn Squire, 1996. "A New Data Set Measuring Income Inequality," CEMA Working Papers, China Economics and Management Academy, Central University of Finance and Economics 512, China Economics and Management Academy, Central University of Finance and Economics.
  8. Kraay, Aart, 2006. "When is growth pro-poor? Evidence from a panel of countries," Journal of Development Economics, Elsevier, Elsevier, vol. 80(1), pages 198-227, June.
  9. Hongyi Li & Lyn Squire & Tao Zhang & Heng-fu Zou, 1999. "A Data Set on Income Distribution," CEMA Working Papers, China Economics and Management Academy, Central University of Finance and Economics 575, China Economics and Management Academy, Central University of Finance and Economics.
  10. Mattias Lundberg & Lyn Squire, 2003. "The simultaneous evolution of growth and inequality," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 113(487), pages 326-344, 04.
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