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Income Distribution: Effects on Growth and Development

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  • Nancy Birdsall

Abstract

I review the literature on the effects of inequality on growth and development in the developing world. Two stylized facts emerge from empirical studies: inequality is more likely to harm growth in countries at low levels of income (below about $3200 per capita in 2000 dollars); and it is at high levels of inequality (at or above a Gini coefficient of .45) that a negative association emerges. Between 15 and 40 percent of the developing world's population lives in countries with these characteristics, depending on the inclusion of China, whose level of inequality has recently been measured at almost .45. Theory and evidence suggest that high inequality affects growth: (1) through interaction with incomplete and underdeveloped markets for capital and information; (2) by discouraging the evolution of the economic and political institutions associated with accountable government (which in turn enable a market environment conducive to investment and growth); and (3) by undermining the civic and social life that sustains effective collective decision-making.

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  • Nancy Birdsall, 2007. "Income Distribution: Effects on Growth and Development," Working Papers 118, Center for Global Development.
  • Handle: RePEc:cgd:wpaper:118
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    2. Syrovátka, Miroslav & Schlossarek, Martin, 2019. "Measuring development with inequality: How (should) aggregate indicators of development account for inequality?," Ecological Economics, Elsevier, vol. 164(C), pages 1-1.
    3. Zúñiga, Jimena & Capello, Marcelo & Butler, Inés & Grión, Nester, 2018. "A Cycle-Adjusted Fiscal Rule for Sustainable and More Equitable Growth in Argentina," IDB Publications (Working Papers) 4638, Inter-American Development Bank.
    4. Blanco, Luisa, 2010. "Life is Unfair in Latin America, But Does it Matter for Growth?," World Development, Elsevier, vol. 38(3), pages 393-404, March.
    5. Alex Cobham, Andy Sumner, 2013. "Is It All About the Tails? The Palma Measure of Income Inequality-Working Paper 343," Working Papers 343, Center for Global Development.
    6. Alex Cobham & Andrew Sumner, 2013. "Is it all about the tails? The Palma measure of income inequality," Working Papers 308, ECINEQ, Society for the Study of Economic Inequality.
    7. Birdsall, Nancy, 2007. "Reflections on the Macro Foundations of the Middle Class in the Developing World," Center for Global, International and Regional Studies, Working Paper Series qt4nt1n232, Center for Global, International and Regional Studies, UC Santa Cruz.
    8. Jimena Zúñiga & Marcelo Capello & Inés Butler & Nester Grión, 2013. "A Cycle-Adjusted Fiscal Rule for Sustainable and More Equitable Growth in Argentina," IDB Publications (Working Papers) 82358, Inter-American Development Bank.
    9. Benjamin Leo, 2010. "Who Are the MDG Trailblazers? A New MDG Progress Index," Working Papers id:2926, eSocialSciences.
    10. Ahmet Faruk Aysan & Dilek Demirbas & Mustafa Disli & Monica Parra, 2021. "Resilience and Path Dependency: Income Distribution Effects of GDP in Colombia," Working Papers hal-03365148, HAL.
    11. Dumitriu, Ramona & Stefanescu, Răzvan, 2015. "Economic development of Comecon countries," MPRA Paper 89012, University Library of Munich, Germany, revised 05 Jan 2016.

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    More about this item

    Keywords

    Income distribution; inequality; poverty; growth; development; institutions;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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