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

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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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    File URL: https://doi.org/10.1111/roiw.12311
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    Cited by:

    1. Kufenko, Vadim & Geloso, Vincent, 2019. "Who are the champions? Inequality, economic freedom and the olympics," Hohenheim Discussion Papers in Business, Economics and Social Sciences 13-2019, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    2. Tetteh-Baah, Samuel Kofi, 2019. "The impact of discrimination on redistributive preferences and productivity: experimental evidence from the United States," Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy 203652, Verein für Socialpolitik / German Economic Association.
    3. 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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