The distributional effects of growth : case studies vs. Cross-country regressions
Considerable attention has been devoted lately to the empirical relationship between growth and inequality. Mostly based on cross-sectional econometric analysis, this literature is largely inconclusive in the sense that no systematically significant relationship has been found between distribution indicators and growth rates or their known determinants. Were such a result granted, it would be tempting to conclude that ‘growth is good for the poor’ whatever the nature of growth, as recently done in an influential paper by Dollar and Kraay (2001). The present paper adopts a different perspective. Using a few case studies and an original micro-economic methodology for decomposing time changes in the distribution of income, it shows that important socio-demographic factors are at work that may contribute to hiding the true distributional consequences of growth during a particular period of time in a given country. Because of the inherent difficulty of controlling for these factors, aggregate cross-country analysis may thus not be the best method for the study of the growth-inequality relationship.
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