Economic growth and equality of opportunity (original) (raw)

Inequality, inequality of opportunity, and growth: what are we talking about? Theory and empirical

2013

Building on the existing literature, a synthetic approach intended to ease the understanding of the notion of inequality of opportunity is developed. In turn, this paper tests a convincing hypothesis explaining the mixed evidence found by empirical studies regarding the instrumental effect of inequality on growth: income inequality would in fact be a composite measure of inequality of opportunity, which is expected to be detrimental to growth, and of inequality effort, which is expected to be beneficial; the effect of total income inequality would then depend on which sort of inequality dominates. This hypothesis, already confirmed by Marrero and Rodríguez (2012) in the US, needs to be validated in other countries and on different samples in order to gain legitimacy. This paper consequently replicates the benchmark regressions from Marrero and Rodríguez (2012) in an emerging economy, namely Brazil. The results are in complete contradiction with those found in the US: neither inequality of opportunity nor inequality of effort have a significant impact on growth, whatever the econometric specification used.

Inequality of opportunity and growth

Journal of Development Economics, 2013

Theoretical models and empirical studies exploring the relationship between income inequality and growth reach a disappointing inconclusive answer. We postulate in this paper that one reason for this inconclusive result is that income inequality consist at least in two different sorts of inequality, inequality of opportunity and effort. These two types of inequality would affect growth through opposite channels. As a result, the relationship between income inequality and growth could be positive or negative depending on which kind of inequality is more relevant. We test this proposal using depurated data of the PSID database for 24 US states from 1980 to 2000. We estimate regressions that relate growth with overall income inequality, inequality of opportunity and other widespread used control variables. We find robust support for a negative relationship between inequality of opportunity and growth and a positive relationship between growth and income inequality.

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

Policy Research Working Papers, 2014

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.

Inequality and Growth: Uncovering the Main Conclusions from the Empirics

Journal of Development Studies, 2014

The theme of the relationship between inequality and economic growth has gained considerable attention among economists over the last two decades. In this paper, we analyse the effect of inequality on growth, whose related literature has been producing inconclusive results. After an exhaustive study of the major empirical works in this specific research area, we are able not only to advance with some potential explanations for the apparent lack of consensus on the empirical assessment of the inequality-growth relationship, but also to achieve a better understanding of the nature of this relationship and the forces underlying it. We conclude that the disparities found in the results of the estimation of the reduced-form relationship are most likely due to three dimensions: differences in the estimation techniques, the countries and the periods included in the sample, and the variable used to measure inequality. The last two aspects have particularly important implications. First, country/region specificities play a crucial role in the relationship between inequality and growth, so more emphasis should be put on the estimation of such a relationship on a national/regional basis, rather than trying to establish universal patterns. Second, the time horizon of the analysis should be carefully chosen, as different transmission channels from inequality to growth tend to operate differently in the short and in the long-run. Third, the fact that inequality in wealth distribution has a stronger negative effect on growth than inequality in income distribution may indicate that the channels through which inequality affects growth are not the same in both distributions. Therefore, we argue that in order to produce an accurate assessment of both the reduced-form relationship and the underlying transmission channels these aspects should be accordingly considered, which has not been the case in most of the empirical literature.

Inequality and economic growth: theoretical and operational approach

Theoretical and Applied Economics, 2015

The relationship between inequality and the process of economic development is still controversial. In this paper, besides a short overview of the economic literature, we present selected models used to verify the relationship between growth and inequality. We also make a brief analysis of income inequality and poverty in Romania.

Growth and Income Inequality: A Comparative Analysis

2012

This paper investigates whether the relationship between income inequality and growth changes over time. Two time periods, covering 1970-1985 and 1985-1999, are analyzed and compared. A statistically significant relationship between inequality and growth in either time period fails to emerge. However, there are indications that effect of inequality on growth may be different in the nineties when compared to the seventies. In the literature, a consistent negative effect of inequality on growth is documented although the significance of the effect is open to debate. This paper also finds a negative effect of income inequality on growth in the seventies but, although statistically insignificant, a consistently positive effect in the nineties.