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

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  • Ferreira, Francisco H. G.

    () (World Bank)

  • 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
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    Cited by:

    1. 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.
    2. Rachid Laajaj & Andres Moya & Fabio Sánchez, 2018. "Equality of Opportunity and Human Capital Accumulation: Motivational Effect of a Nationwide Scholarship in Colombia," Documentos CEDE 016352, Universidad de los Andes - CEDE.
    3. 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.
    4. 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.
    5. Xavier Ramos Dirk Van de gaer & Dirk Van de gaer, 2017. "Is inequality of opportunity robust to the measurement approach?," Working Papers 450, ECINEQ, Society for the Study of Economic Inequality.
    6. Naude, Wim & Nagler, Paula, 2015. "Industrialisation, Innovation, Inclusion," MERIT Working Papers 043, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    7. 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.
    8. 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.
    9. 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.
    10. 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.
    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, The World Bank, number 28428, 12-2019.
    12. Stephan Litschig & Maria Lombardi, 2017. "Which Tail Matters? Inequality and Growth in Brazil," GRIPS Discussion Papers 17-08, National Graduate Institute for Policy Studies.

    More about this item

    Keywords

    economic growth; inequality of opportunity; inequality;

    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

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