IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp8243.html
   My bibliography  Save this paper

Inequality of Opportunity and Economic Growth: A Cross-Country Analysis

Author

Listed:
  • Ferreira, Francisco H. G.

    (London School of Economics)

  • Lakner, Christoph

    (World Bank)

  • Lugo, Maria Ana

    (World Bank)

  • Özler, Berk

    (World Bank)

Abstract

Income differences arise from many sources. While some kinds of inequality, caused by effort differences, might be associated with faster economic growth, other kinds, arising from unequal opportunities for investment, might be detrimental to economic progress. We construct two new metadata sets, consisting of 118 household surveys and 134 Demographic and Health Surveys, to revisit the question of whether inequality is associated with economic growth and, in particular, to examine whether inequality of opportunity – driven by circumstances at birth – has a negative effect on subsequent growth. Results are suggestive but not robust: while overall income inequality is generally negatively associated with growth in the household survey sample, we find no evidence that this is due to the component we attribute to unequal opportunities. In the DHS sample, both overall wealth inequality and inequality of opportunity have a negative effect on growth in some of our preferred specifications, but the results are not robust to relatively minor changes. On balance, although our results are suggestive of a negative association between inequality and growth, the data at our disposal does not permit robust conclusions as to whether inequality of opportunity is bad for growth.

Suggested Citation

  • Ferreira, Francisco H. G. & Lakner, Christoph & Lugo, Maria Ana & Özler, Berk, 2014. "Inequality of Opportunity and Economic Growth: A Cross-Country Analysis," IZA Discussion Papers 8243, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp8243
    as

    Download full text from publisher

    File URL: https://docs.iza.org/dp8243.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Sarah Voitchovsky, 2005. "Does the Profile of Income Inequality Matter for Economic Growth?," Journal of Economic Growth, Springer, vol. 10(3), pages 273-296, September.
    2. Berg, Andrew & Ostry, Jonathan D. & Zettelmeyer, Jeromin, 2012. "What makes growth sustained?," Journal of Development Economics, Elsevier, vol. 98(2), pages 149-166.
    3. Campante, Filipe R. & Ferreira, Francisco H.G., 2007. "Inefficient lobbying, populism and oligarchy," Journal of Public Economics, Elsevier, vol. 91(5-6), pages 993-1021, June.
    4. Esteban, Joan & Ray, Debraj, 2000. "Wealth constraints, lobbying and the efficiency of public allocation," European Economic Review, Elsevier, vol. 44(4-6), pages 694-705, May.
    5. Daniele Checchi & Vito Peragine, 2010. "Inequality of opportunity in Italy," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 8(4), pages 429-450, December.
    6. Marc Fleurbaey & Vito Peragine, 2013. "Ex Ante Versus Ex Post Equality of Opportunity," Economica, London School of Economics and Political Science, vol. 80(317), pages 118-130, January.
    7. Easterly, William, 2007. "Inequality does cause underdevelopment: Insights from a new instrument," Journal of Development Economics, Elsevier, vol. 84(2), pages 755-776, November.
    8. Deininger, Klaus & Squire, Lyn, 1998. "New ways of looking at old issues: inequality and growth," Journal of Development Economics, Elsevier, vol. 57(2), pages 259-287.
    9. Simon Kuznets & Elizabeth Jenks, 1953. "Shares of Upper Income Groups in Income and Savings (1953)," NBER Books, National Bureau of Economic Research, Inc, number kuzn53-1.
    10. Roemer, John E. & Aaberge, Rolf & Colombino, Ugo & Fritzell, Johan & Jenkins, Stephen P. & Lefranc, Arnaud & Marx, Ive & Page, Marianne & Pommer, Evert & Ruiz-Castillo, Javier, 2003. "To what extent do fiscal regimes equalize opportunities for income acquisition among citizens?," Journal of Public Economics, Elsevier, vol. 87(3-4), pages 539-565, March.
    11. Luigi L. Pasinetti, 1962. "Rate of Profit and Income Distribution in Relation to the Rate of Economic Growth," Review of Economic Studies, Oxford University Press, vol. 29(4), pages 267-279.
    12. Alberto Alesina & Dani Rodrik, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 465-490.
    13. Loury, Glenn C, 1981. "Intergenerational Transfers and the Distribution of Earnings," Econometrica, Econometric Society, vol. 49(4), pages 843-867, June.
    14. Barro, Robert J & Lee, Jong-Wha, 2001. "International Data on Educational Attainment: Updates and Implications," Oxford Economic Papers, Oxford University Press, vol. 53(3), pages 541-563, July.
    15. Francisco H.G. Ferreira, 2001. "Education for the masses? The interaction between wealth, educational and political inequalities," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 9(2), pages 533-552, July.
    16. Atkinson, A B, 1997. "Bringing Income Distribution in from the Cold," Economic Journal, Royal Economic Society, vol. 107(441), pages 297-321, March.
    17. Stephen R. Bond, 2002. "Dynamic panel data models: a guide to micro data methods and practice," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 1(2), pages 141-162, August.
    18. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    19. 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 274-298, April.
    20. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 407-443.
    21. Deon Filmer & Lant Pritchett, 2001. "Estimating Wealth Effects Without Expenditure Data—Or Tears: An Application To Educational Enrollments In States Of India," Demography, Springer;Population Association of America (PAA), vol. 38(1), pages 115-132, February.
    22. Nadia Belhaj Hassine, 2012. "Inequality of Opportunity in Egypt," World Bank Economic Review, World Bank Group, vol. 26(2), pages 265-295.
    23. Simon Kuznets & Elizabeth Jenks, 1953. "Shares of Upper Income Groups in Savings," NBER Chapters, in: Shares of Upper Income Groups in Income and Savings (1953), pages 171-218, National Bureau of Economic Research, Inc.
    24. Francisco Ferreira & Jérémie Gignoux & Meltem Aran, 2011. "Measuring inequality of opportunity with imperfect data: the case of Turkey," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 9(4), pages 651-680, December.
    25. Martin Ravallion, 2012. "Why Don't We See Poverty Convergence?," American Economic Review, American Economic Association, vol. 102(1), pages 504-523, February.
    26. Arnaud Lefranc & Nicolas Pistolesi & Alain Trannoy, 2008. "Inequality Of Opportunities Vs. Inequality Of Outcomes: Are Western Societies All Alike?," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 54(4), pages 513-546, December.
    27. Philippe Aghion & Patrick Bolton, 1997. "A Theory of Trickle-Down Growth and Development," Review of Economic Studies, Oxford University Press, vol. 64(2), pages 151-172.
    28. Cecilia Garcia-Penalosa & Eve Caroli & Philippe Aghion, 1999. "Inequality and Economic Growth: The Perspective of the New Growth Theories," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1615-1660, December.
    29. Hongyi Li & Heng‐fu Zou, 1998. "Income Inequality is not Harmful for Growth: Theory and Evidence," Review of Development Economics, Wiley Blackwell, vol. 2(3), pages 318-334, October.
    30. Oded Galor & Joseph Zeira, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Oxford University Press, vol. 60(1), pages 35-52.
    31. Frederick Solt, 2009. "Standardizing the World Income Inequality Database," LIS Working papers 496, LIS Cross-National Data Center in Luxembourg.
    32. Francisco H. G. Ferreira & Jérémie Gignoux, 2011. "The Measurement Of Inequality Of Opportunity: Theory And An Application To Latin America," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 57(4), pages 622-657, December.
    33. Francisco H.G. Ferreira & Jérémie Gignoux, 2011. "The Measurement of Inequality of Inequality of Opportunity: Theory and an Application to Latin America," PSE-Ecole d'économie de Paris (Postprint) halshs-00754503, HAL.
    34. Stephen Bond, 2002. "Dynamic panel data models: a guide to microdata methods and practice," CeMMAP working papers CWP09/02, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    35. Erwin Ooghe & Erik Schokkaert & Dirk gaer, 2007. "Equality of Opportunity versus Equality of Opportunity Sets," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 28(2), pages 209-230, February.
    36. Marrero, Gustavo A. & Rodríguez, Juan G., 2013. "Inequality of opportunity and growth," Journal of Development Economics, Elsevier, vol. 104(C), pages 107-122.
    37. M. E. Bontempi & I. Mammi, 2012. "A strategy to reduce the count of moment conditions in panel data GMM," Working Papers wp843, Dipartimento Scienze Economiche, Universita' di Bologna.
    38. repec:dau:papers:123456789/10091 is not listed on IDEAS
    39. Banerjee, Abhijit V & Duflo, Esther, 2003. "Inequality and Growth: What Can the Data Say?," Journal of Economic Growth, Springer, vol. 8(3), pages 267-299, September.
    40. Roemer, John E. & Aaberge, Rolf & Colombino, Ugo & Fritzell, Johan & Jenkins, Stephen P. & Lefranc, Arnaud & Marx, Ive & Page, Marianne & Pommer, Evert & Ruiz-Castillo, Javier, 2003. "To what extent do fiscal regimes equalize opportunities for income acquisition among citizens?," Journal of Public Economics, Elsevier, vol. 87(3-4), pages 539-565, March.
    41. Araujo, M. Caridad & Ferreira, Francisco H.G. & Lanjouw, Peter & Özler, Berk, 2008. "Local inequality and project choice: Theory and evidence from Ecuador," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1022-1046, June.
    42. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June.
    43. Frederick Solt, 2009. "Standardizing the World Income Inequality Database," Social Science Quarterly, Southwestern Social Science Association, vol. 90(2), pages 231-242, June.
    44. Barro, Robert J, 2000. "Inequality and Growth in a Panel of Countries," Journal of Economic Growth, Springer, vol. 5(1), pages 5-32, March.
    45. Arnaud Lefranc & Nicolas Pistolesi & Alain Trannoy, 2008. "Inequality Of Opportunities Vs. Inequality Of Outcomes: Are Western Societies All Alike?," Post-Print hal-01650720, HAL.
    46. Abadie, Alberto & Diamond, Alexis & Hainmueller, Jens, 2010. "Synthetic Control Methods for Comparative Case Studies: Estimating the Effect of California’s Tobacco Control Program," Journal of the American Statistical Association, American Statistical Association, vol. 105(490), pages 493-505.
    47. Li, Hongyi & Zou, Heng-fu, 1998. "Income Inequality Is Not Harmful for Growth: Theory and Evidence," Review of Development Economics, Wiley Blackwell, vol. 2(3), pages 318-334, October.
    48. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
    49. Kristin J. Forbes, 2000. "A Reassessment of the Relationship between Inequality and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 869-887, September.
    50. Foster, James E. & Shneyerov, Artyom A., 2000. "Path Independent Inequality Measures," Journal of Economic Theory, Elsevier, vol. 91(2), pages 199-222, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Roy van der Weide & Branko Milanovic, 2018. "Inequality is Bad for Growth of the Poor (but Not for That of the Rich)," World Bank Economic Review, World Bank Group, vol. 32(3), pages 507-530.
    2. Naude, Wim & Nagler, Paula, 2015. "Industrialisation, Innovation, Inclusion," MERIT Working Papers 2015-043, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    3. Maria Lucia Pace, 2016. "Un test per la diseguaglianza delle opportunità dovuta a fattori regionali," RIVISTA DI ECONOMIA E STATISTICA DEL TERRITORIO, FrancoAngeli Editore, vol. 2016(3), pages 113-143.
    4. Milan Bednař, 2019. "Political Budget Cycles in the European Union: New Evidence of Fragmentation," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 69(4), pages 523-547, December.
    5. Song, Yang & Zhou, Guangsu, 2019. "Inequality of opportunity and household education expenditures: Evidence from panel data in China," China Economic Review, Elsevier, vol. 55(C), pages 85-98.
    6. Laajaj, Rachid & Moya, Andrés & Sánchez, Fabio, 2022. "Equality of opportunity and human capital accumulation: Motivational effect of a nationwide scholarship in Colombia," Journal of Development Economics, Elsevier, vol. 154(C).
    7. Paolo Brunori & Flaviana Palmisano & Vitorocco Peragine, 2019. "Inequality of opportunity in sub-Saharan Africa," Applied Economics, Taylor & Francis Journals, vol. 51(60), pages 6428-6458, December.
    8. Brock, J. Michelle, 2020. "Unfair inequality, governance and individual beliefs," Journal of Comparative Economics, Elsevier, vol. 48(3), pages 658-687.
    9. 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.
    10. Mohamed Bouincha & Mohamed Karim, 2018. "Income Inequality and Economic Growth: An Analysis Using a Panel Data," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 10(5), pages 242-253, May.
    11. Ambar Narayan & Roy Van der Weide & Alexandru Cojocaru & Christoph Lakner & Silvia Redaelli & Daniel Gerszon Mahler & Rakesh Gupta N. Ramasubbaiah & Stefan Thewissen, 2018. "Fair Progress?," World Bank Publications - Books, The World Bank Group, number 28428.
    12. Stephan Litschig & María Lombardi, 2019. "Which tail matters? Inequality and growth in Brazil," Journal of Economic Growth, Springer, vol. 24(2), pages 155-187, June.
    13. Song, Yang & Wu, Weixing & Zhou, Guangsu, 2020. "Inequality of opportunity and household risky asset investment: Evidence from panel data in China," China Economic Review, Elsevier, vol. 63(C).
    14. Hochard, Jacob & Barbier, Edward, 2017. "Market Accessibility and Economic Growth: Insights from a New Dimension of Inequality," World Development, Elsevier, vol. 97(C), pages 279-297.
    15. Xavier Ramos & Dirk Van de gaer, 2021. "Is Inequality of Opportunity Robust to the Measurement Approach?," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 67(1), pages 18-36, March.
    16. Giuseppe Arbia & Maria Lucia Pace, 2018. "Testing inequality of opportunities in Italy using the ANOVA framework," Empirical Economics, Springer, vol. 55(1), pages 297-322, August.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Marrero, Gustavo A. & Rodríguez, Juan G., 2013. "Inequality of opportunity and growth," Journal of Development Economics, Elsevier, vol. 104(C), pages 107-122.
    2. Andrew Berg & Jonathan D. Ostry & Charalambos G. Tsangarides & Yorbol Yakhshilikov, 2018. "Redistribution, inequality, and growth: new evidence," Journal of Economic Growth, Springer, vol. 23(3), pages 259-305, September.
    3. Gründler, Klaus & Scheuermeyer, Philipp, 2018. "Growth effects of inequality and redistribution: What are the transmission channels?," Journal of Macroeconomics, Elsevier, vol. 55(C), pages 293-313.
    4. Stephan Litschig & María Lombardi, 2019. "Which tail matters? Inequality and growth in Brazil," Journal of Economic Growth, Springer, vol. 24(2), pages 155-187, June.
    5. Roberto Dell'Anno & Adalgiso Amendola, 2015. "Social Exclusion and Economic Growth: An Empirical Investigation in European Economies," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 61(2), pages 274-301, June.
    6. Bagchi, Sutirtha & Svejnar, Jan, 2015. "Does wealth inequality matter for growth? The effect of billionaire wealth, income distribution, and poverty," Journal of Comparative Economics, Elsevier, vol. 43(3), pages 505-530.
    7. Martin Ravallion, 2013. "The Idea of Antipoverty Policy," NBER Working Papers 19210, National Bureau of Economic Research, Inc.
    8. Ademola Obafemi Young, 2019. "Growth Impacts of Income Inequality: Empirical Evidence From Nigeria," Research in World Economy, Research in World Economy, Sciedu Press, vol. 10(3), pages 226-262, December.
    9. Gravier-Rymaszewska, Joanna & Tyrowicz, Joanna & Kochanowicz, Jacek, 2010. "Intra-provincial inequalities and economic growth in China," Economic Systems, Elsevier, vol. 34(3), pages 237-258, September.
    10. Daniel Halter & Manuel Oechslin & Josef Zweimüller, 2014. "Inequality and growth: the neglected time dimension," Journal of Economic Growth, Springer, vol. 19(1), pages 81-104, March.
    11. Xavier Ramos & Dirk Van de gaer, 2021. "Is Inequality of Opportunity Robust to the Measurement Approach?," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 67(1), pages 18-36, March.
    12. Amparo Castelló-Climent, 2010. "Inequality and growth in advanced economies: an empirical investigation," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 8(3), pages 293-321, September.
    13. Christophe Ehrhart, 2009. "The effects of inequality on growth: a survey of the theoretical and empirical literature," Working Papers 107, ECINEQ, Society for the Study of Economic Inequality.
    14. Grossmann, Volker, 2008. "Risky human capital investment, income distribution, and macroeconomic dynamics," Journal of Macroeconomics, Elsevier, vol. 30(1), pages 19-42, March.
    15. Shinhye Chang & Rangan Gupta & Stephen M. Miller, 2018. "Causality Between Per Capita Real GDP and Income Inequality in the U.S.: Evidence from a Wavelet Analysis," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 135(1), pages 269-289, January.
    16. Adalgiso Amendola & Roberto Dell’Anno, 2014. "Income inequality and economic growth: an empirical investigation in Mediterranean countries," RIEDS - Rivista Italiana di Economia, Demografia e Statistica - The Italian Journal of Economic, Demographic and Statistical Studies, SIEDS Societa' Italiana di Economia Demografia e Statistica, vol. 68(2), pages 35-58, April-Jun.
    17. Lubimov, I.L. (Любимов, И.Л.), 2016. "Inequality and Growth: Theoretical Aspects of Dependence [Неравенство И Экономический Рост: Теоретические Аспекты Зависимости]," Working Papers 2042, Russian Presidential Academy of National Economy and Public Administration.
    18. Gründler, Klaus & Scheuermeyer, Philipp, 2015. "Income inequality, economic growth, and the effect of redistribution," W.E.P. - Würzburg Economic Papers 95, University of Würzburg, Chair for Monetary Policy and International Economics.
    19. Halter, David & Oechslin, Manuel, 2010. "Inequality and Growth: The Neglected Time Dimension," CEPR Discussion Papers 8033, C.E.P.R. Discussion Papers.
    20. Lin Shu-Chin & Huang Ho-Chuan & Kim Dong-Hyeon & Yeh Chih-Chuan, 2009. "Nonlinearity between Inequality and Growth," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 13(2), pages 1-20, May.

    More about this item

    Keywords

    economic growth; inequality of opportunity; inequality;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp8243. See general 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: . General contact details of provider: https://edirc.repec.org/data/izaaade.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Holger Hinte (email available below). General contact details of provider: https://edirc.repec.org/data/izaaade.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.