Level of development, rate of economic growth, and income inequality

Economic Development and Cultural Change

Volumn 48, Issue 4, 2000, Pages 787-799

  Chang, Jih Y ^a   Ram, Rati ^a  

^a ILLINOIS STATE UNIVERSITY   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

ECONOMIC DEVELOPMENT; ECONOMIC GROWTH; INCOME DISTRIBUTION; KUZNETS CURVE;

EID: 0033811113     PISSN: 00130079     EISSN: None     Source Type: Journal    
DOI: 10.1086/452477     Document Type: Article

References (32)

1. Simon Kuznets, "Economic Growth and Income Inequality," American Economic Review 45 (March 1955): 1-28.
2. Sudhir Anand and S. M. R. Kanbur, "Inequality and Development: A Critique," Journal of Development Economics 41 (1993): 19-43; and Klaus Deininger and Lyn Squire, "New Ways of Looking at Old Issues: Inequality and Growth," Journal of Development Economics 57 (1998): 259-87.
3. Sudhir Anand and S. M. R. Kanbur, "Inequality and Development: A Critique," Journal of Development Economics 41 (1993): 19-43; and Klaus Deininger and Lyn Squire, "New Ways of Looking at Old Issues: Inequality and Growth," Journal of Development Economics 57 (1998): 259-87.
4. Susan M. Randolph and William F. Lott, "Can the Kuznets Effect Be Relied on to Induce Equalizing Growth?" World Development 21 (1993): 829-40; Rati Ram, "Economic Development and Income Inequality: An Overlooked Regression Constraint," Economic Development and Cultural Change 43 (January 1995): 425-34 ; and Shailesh K. Jha, "The Kuznets Curve: A Reassessment," World Development 24 (1996): 773-80.
5. Susan M. Randolph and William F. Lott, "Can the Kuznets Effect Be Relied on to Induce Equalizing Growth?" World Development 21 (1993): 829-40; Rati Ram, "Economic Development and Income Inequality: An Overlooked Regression Constraint," Economic Development and Cultural Change 43 (January 1995): 425-34 ; and Shailesh K. Jha, "The Kuznets Curve: A Reassessment," World Development 24 (1996): 773-80.
6. Susan M. Randolph and William F. Lott, "Can the Kuznets Effect Be Relied on to Induce Equalizing Growth?" World Development 21 (1993): 829-40; Rati Ram, "Economic Development and Income Inequality: An Overlooked Regression Constraint," Economic Development and Cultural Change 43 (January 1995): 425-34 ; and Shailesh K. Jha, "The Kuznets Curve: A Reassessment," World Development 24 (1996): 773-80.
7. Albert Fishlow, "Inequality, Poverty, and Growth: Where Do We Stand?" in Annual World Bank Conference on Development Economics, 1995, ed. Michael Bruno and Boris Pleskovic (Washington, D.C.: World Bank, 1996), pp. 25-39.
8. Montek S. Ahluwalia, "Income Distribution and Development: Some Stylized Facts," American Economic Review Papers and Proceedings 66 (1976): 128-35, and "Inequality, Poverty, and Development," Journal of Development Economics 3 (1976): 307-42, esp. 338.
9. Montek S. Ahluwalia, "Income Distribution and Development: Some Stylized Facts," American Economic Review Papers and Proceedings 66 (1976): 128-35, and "Inequality, Poverty, and Development," Journal of Development Economics 3 (1976): 307-42, esp. 338.
10. Gary S. Fields, Poverty, Inequality, and Development (New York: Cambridge University Press, 1980), p. 122.
11. C. R. Winegarden, "Schooling and Income Distribution: Evidence from International Data," Econoinica 46 (1979): 83-87; and Rati Ram, "Population Increase, Economic Growth, Educational Inequality, and Income Distribution: Some Recent Evidence," Journal of Development Economics 14 (1984): 419-28.
12. C. R. Winegarden, "Schooling and Income Distribution: Evidence from International Data," Econoinica 46 (1979): 83-87; and Rati Ram, "Population Increase, Economic Growth, Educational Inequality, and Income Distribution: Some Recent Evidence," Journal of Development Economics 14 (1984): 419-28.
13. Alberto Alesina and Dani Rodrik, "Distributive Politics and Economic Growth," Quarterly Journal of Economics 109 (1994): 465-90; Torsten Persson and Guido Tabellini, "Is Inequality Harmful for Growth?" American Economic Review 84 (June 1994): 600-621; Roland Benabou, "Inequality and Growth," in NBER Macroeconomics Annual, 1996, ed. Ben S. Bernanke and Julio J. Rotemberg (Cambridge, Mass.: MIT Press, 1996), pp. 11-74; Jason Furman and Joseph E. Stiglitz, "Economic Consequences of Income Inequality," in Income Inequality: Issues and Policy Options, Proceedings of a Symposium Sponsored by the Federal Reserve Bank of Kansas City (Kansas City, Mo.: Federal Reserve Bank of Kansas City, 1998), pp. 221-63; and Hongyi Li and Heng-fu Zou, "Income Inequality Is Not Harmful for Growth: Theory and Evidence," Review of Development Economics 2 (1998): 318-34.
14. Alberto Alesina and Dani Rodrik, "Distributive Politics and Economic Growth," Quarterly Journal of Economics 109 (1994): 465-90; Torsten Persson and Guido Tabellini, "Is Inequality Harmful for Growth?" American Economic Review 84 (June 1994): 600-621; Roland Benabou, "Inequality and Growth," in NBER Macroeconomics Annual, 1996, ed. Ben S. Bernanke and Julio J. Rotemberg (Cambridge, Mass.: MIT Press, 1996), pp. 11-74; Jason Furman and Joseph E. Stiglitz, "Economic Consequences of Income Inequality," in Income Inequality: Issues and Policy Options, Proceedings of a Symposium Sponsored by the Federal Reserve Bank of Kansas City (Kansas City, Mo.: Federal Reserve Bank of Kansas City, 1998), pp. 221-63; and Hongyi Li and Heng-fu Zou, "Income Inequality Is Not Harmful for Growth: Theory and Evidence," Review of Development Economics 2 (1998): 318-34.
15. Alberto Alesina and Dani Rodrik, "Distributive Politics and Economic Growth," Quarterly Journal of Economics 109 (1994): 465-90; Torsten Persson and Guido Tabellini, "Is Inequality Harmful for Growth?" American Economic Review 84 (June 1994): 600-621; Roland Benabou, "Inequality and Growth," in NBER Macroeconomics Annual, 1996, ed. Ben S. Bernanke and Julio J. Rotemberg (Cambridge, Mass.: MIT Press, 1996), pp. 11-74; Jason Furman and Joseph E. Stiglitz, "Economic Consequences of Income Inequality," in Income Inequality: Issues and Policy Options, Proceedings of a Symposium Sponsored by the Federal Reserve Bank of Kansas City (Kansas City, Mo.: Federal Reserve Bank of Kansas City, 1998), pp. 221-63; and Hongyi Li and Heng-fu Zou, "Income Inequality Is Not Harmful for Growth: Theory and Evidence," Review of Development Economics 2 (1998): 318-34.
16. Alberto Alesina and Dani Rodrik, "Distributive Politics and Economic Growth," Quarterly Journal of Economics 109 (1994): 465-90; Torsten Persson and Guido Tabellini, "Is Inequality Harmful for Growth?" American Economic Review 84 (June 1994): 600-621; Roland Benabou, "Inequality and Growth," in NBER Macroeconomics Annual, 1996, ed. Ben S. Bernanke and Julio J. Rotemberg (Cambridge, Mass.: MIT Press, 1996), pp. 11-74; Jason Furman and Joseph E. Stiglitz, "Economic Consequences of Income Inequality," in Income Inequality: Issues and Policy Options, Proceedings of a Symposium Sponsored by the Federal Reserve Bank of Kansas City (Kansas City, Mo.: Federal Reserve Bank of Kansas City, 1998), pp. 221-63; and Hongyi Li and Heng-fu Zou, "Income Inequality Is Not Harmful for Growth: Theory and Evidence," Review of Development Economics 2 (1998): 318-34.
17. Alberto Alesina and Dani Rodrik, "Distributive Politics and Economic Growth," Quarterly Journal of Economics 109 (1994): 465-90; Torsten Persson and Guido Tabellini, "Is Inequality Harmful for Growth?" American Economic Review 84 (June 1994): 600-621; Roland Benabou, "Inequality and Growth," in NBER Macroeconomics Annual, 1996, ed. Ben S. Bernanke and Julio J. Rotemberg (Cambridge, Mass.: MIT Press, 1996), pp. 11-74; Jason Furman and Joseph E. Stiglitz, "Economic Consequences of Income Inequality," in Income Inequality: Issues and Policy Options, Proceedings of a Symposium Sponsored by the Federal Reserve Bank of Kansas City (Kansas City, Mo.: Federal Reserve Bank of Kansas City, 1998), pp. 221-63; and Hongyi Li and Heng-fu Zou, "Income Inequality Is Not Harmful for Growth: Theory and Evidence," Review of Development Economics 2 (1998): 318-34.
18. Alesina and Rodrik; Persson and Tabellini; Nancy Birdsall, David Ross, and Richard Sabot, "Inequality and Growth Reconsidered: Lessons from East Asia," World Bank Economic Review 9 (1995): 477-508; and Furman and Stig-litz.
19. Of course, it is also possible to estimate eq. (1) separately for each group. In that case, the parameter estimates would be the same as in eq. (3), but their precision would be lower due to fewer degrees of freedom. Also, formal comparison of the corresponding estimates in the two groups is more difficult with separate estimations.
20. Klaus Deininger and Lyn Squire, "A New Data Set Measuring Income Inequality," World Bank Economic Review 10 (September 1996): 565-91.
21. As described in n. 23 below, estimates for Theil's entropy index indicate a similar picture (Henri Theil, Economics and Information Theory [Amsterdam: North-Holland, 1967]) . From a different data set on income distribution, Jih Y. Chang ("Level of Economic Development, Growth Rate, and Income Inequality" [M.S. thesis, Illinois State University, 1996]) reports similar results for several different measures of inequality.
22. As described in n. 23 below, estimates for Theil's entropy index indicate a similar picture (Henri Theil, Economics and Information Theory [Amsterdam: North-Holland, 1967]) . From a different data set on income distribution, Jih Y. Chang ("Level of Economic Development, Growth Rate, and Income Inequality" [M.S. thesis, Illinois State University, 1996]) reports similar results for several different measures of inequality.
23. United Nations Development Programme, Human Development Report, 1993 (New York: Oxford University Press, 1993), pp. 188-89, 212.
24. Robert Summers and Alan Heston, "The Penn World Table (Mark 5): An Expanded Set of International Comparisons, 1950-1988," Quarterly Journal of Economics 106 (1991): 327-68.
25. Table Al in the appendix lists the sample countries and identifies the high-growth and the low-growth cases.
26. Winegarden; and Ram, "Population Increase, Economic Growth, Educational Inequality, and Income Distribution."
27. The unweighted means for the main variables are given below table presented 18. Note that the samples in table 1 and table 2 differ. However, the diagnostic procedure suggested by David A. Belsley, Edwin Kuh, and Roy E. Welsch, Regression Diagnostics (New York: John Wiley, 1980), pp. 112-13, indicates that collinearity is likely to be significant. Two condition indexes have huge values of 500 and 1,090, and the latter is associated with high variance decomposition proportions for every variable. Additional details of the collinearity diagnostics are available from us on request.
28. These numbers contrast rather sharply with the difference implied by the estimates in table 1 with an additive GY term. Since unweighted mean values of GY in the high-growth and the low-growth groups are 3.82 and -1.75, respectively, the estimated coefficient of GY in table 1 implies a difference of about 4.10 percentage points in the Gini coefficient between the two groups at all income levels. However, such quantitative comparisons should be treated cautiously owing to the low precision of the individual parameter estimates for some of the variables in eq. (3).
29. See Birdsall, Ross, and Sabot (n. 9 above). As the appendix shows, the eight East Asian countries included in the high-growth group are China, Hong Kong, Indonesia, Japan, Korea (South), Malaysia, Singapore, and Thailand. The high-growth cases, however, also include such countries as Botswana, India, Mauritius, Pakistan, Seychelles, Sri Lanka, and Turkey. Similarly, the low-growth cases also are quite diverse.
30. Hollis Chenery, Montek S. Ahluwalia, C. L. G. Bell, John H. Duloy, and Richard Jolly, Redistribution with Growth (London: Oxford University Press, 1974). More recently, among others, Furman and Stiglitz (n. 8 above, p. 234) noted, "At the very least, the data do not support the view that there is a strong tradeoff between growth and equality." Perhaps table 3 and fig. 1 of our article enable one to make a somewhat more optimistic statement. Also, Li and Zou (n. 8 above) have recently stated that inequality is not harmful for growth. Even that can be consistent with our estimates if growth has a sizable positive effect on equality.
31. See, e.g., Birdsall, Ross, and Sabot (n. 9 above).
32. We focus on the Gini coefficient because it has been extensively used and also because Deininger and Squire's data ("A New Data Set Measuring Income Inequality" [n. 11 above]) yield more observations for this measure than for income shares. However, although the regression fit varies, the pattern is the same as in table 3 and fig. 1 if the estimates are based on the entropy index suggested by Theil (n. 12 above). Also, classifying the countries on the basis of the growth rate over the periods 1965-80 or 1965-96 yields very similar results. Additional details are available from us on request.