can foreign aid reduce income inequality and poverty this paper s goal is to examine the effect of foreign aid on income inequality and poverty reduction for the period 1971 2002 since simple cross country regressions cannot be taken as true time series findings we focus on dynamic panel data techniques which allow accounting for potential simultaneity and heterogeneity problems we find some weak evidence that foreign aid is conducive to the improvement of the distribution of income when the quality of institutions is taken into account however this result is not robust this finding is consistent with recent empirical research on aid ineffectiveness in achieving economic growth or promoting democratic institutions

the transition to the knowledge economy labor market institutions and income inequality in advanced democracies the transition from fordism to the knowledge economy in the world s advanced democracies was underpinned by the revolution in information and communications technology ict the introduction and rapid diffusion of ict pushed up wages for college educated workers with complementary skills and allowed top managers and ceos to reap greater rewards for their own talents despite these common pressures income inequality did not rise to the same extent everywhere income in the anglo saxon countries remains particularly unequally distributed to shed new light on this puzzle the authors carry out a panel data analysis of eighteen oecd countries between 1970 and 2007 their analysis stands apart from the existing empirical literature by taking a comparative perspective the article examines the extent to which the relationship between the knowledge economy and income inequality is influenced by national labor market institutions the authors find that the expansion of knowledge employment is positively associated with both the 90 10 wage ratio and the income share of the top 1 percent but that these effects are mitigated by the presence of strong labor market institutions such as coordinated wage bargaining strict employment protection legislation high union density and high collective bargaining coverage the authors provide robust evidence against the argument that industrial relations systems are no longer important safeguards of wage solidarity in the knowledge economy

human capital inequality and economic growth some new evidence this paper provides new measures of human capital inequality for a broad panel of countries taking attainment levels from barro and lee 2001 we compute gini coefficients and the distribution of education by quintiles for 108 countries over five year intervals from 1960 to 2000 using this new cross country data on human capital inequality two main conclusions are obtained first most countries in the world have tended to reduce the inequality in human capital distribution second human capital inequality measures provide more robust results than income inequality measures in the estimation of standard growth and investment equations

banking development socioeconomic structure and income inequality abstract using rich unique data from the italian local credit markets provinces this paper investigates the impact of local banking development on income inequality and the role of the socioeconomic structure in this link exploiting the italian historical banking regulation to instrument for the local presence of bank branches we find that local banking development mitigates income inequality however the finance inequality nexus manifests itself only in relatively advanced areas when we study the structural channels of influence we uncover evidence that banking development can reduce inequality by affecting geographical mobility and urbanization while it has modest effects through the development of material infrastructures and human capital

a distributional theory of government growth this article presents a closed form solution for time consistent taxation and public spending in a dynamic game between government and median voter extending meltzer and richard s static analysis of government size the article offers a theory of growth of government at low stages of economic development the median voter identified as a relatively poor worker prefers to have no or only small redistributive taxation in order to foster savings through this channel he expects improvements of his labor productivity and wage at higher stages of development however when capital is relatively abundant and prospects of further labor productivity gains through capital accumulation are smaller the incentive to tax and redistribute income rises yet in line with previous work on growth and infrastructure spending the median voter prefers a constant share of productive public spending at all times hence government growth is solely driven by an expanding welfare state

endogenous trade policy through majority voting an empirical investigation abstract the median voter approach to trade policy determination within a heckscher ohlin framework as in mayer am econ rev 74 5 1984 970 predicts that an increase in inequality holding constant the economy s overall relative endowments raises trade barriers in capital abundant economies and lowers them in capital scarce economies we find support for this prediction using cross country data on inequality capital abundance and diverse measures of protection we perform certain robustness checks that include controlling for the effects of political rights and schooling as well as using alternative datasets on factor endowments

inequality and development evidence from semiparametric estimation with panel data abstract evidences from nonparametric and semiparametric unbalanced panel data models with fixed effects show that kuznet s inverted u relationship is confirmed when economic development reaches a threshold the model tests justify semiparametric specification the integrated net contribution of control variables to inequality reduction is significant

global inequality and international trade the paper analyses the effect of widespread trade liberalisation on global income inequality the analysis of the trend in global inequality during 1981 97 presented in the first part of the paper shows that the apparent growth of income inequality among countries conceals a process of convergence some developing countries achieved significantly faster economic growth than the advanced industrialised countries and though small in number they actually account for a majority of the population of the developing world thus international inequality i e the inequality of distribution of per capita incomes among the world s population in fact declined even though the inter country income inequality increased the analysis in the second part of the paper shows i that while improved trade performance did have a stimulating effect on growth performance of countries trade liberalisation had extremely varied effects on trade performance across countries and ii that the distribution of benefits and costs of trade liberalisation across countries has been such as to reduce international inequality without affecting inter country inequality copyright 2004 oxford university press

natural resource booms and inequality theory and evidence we develop a theory in the context of a two sector growth model in which learning by doing drives growth to explain the time path of income inequality following natural resource booms in resource rich countries under the condition of a relatively unskilled labor intensive non traded sector inequality falls immediately after a boom and then increases steadily over time until the initial impact of the boom disappears using data for 90 countries between 1965 and 1999 we find evidence in support of the theory especially for oil and mineral booms we also find that uncertainty about future commodity prices increases long run inequality

institutional traps and economic growth this article s point of departure is that low quality institutions concentration of political power and material wealth and underdevelopment are persistent over time its analytical model views an equal distribution of political power as a commitment device to enhance institutional quality thereby promoting growth the politically powerful coalition contemplates relinquishing of its power through democratization weighing this advantageous consequence against the limit on own appropriative ability that it entails the possibility of two developmental paths is exhibited with concentration of political and economic power low quality institutions and slow growth and a more equal distribution of political and economic resources high quality institutions and faster growth

when is growth pro poor evidence from a panel of countries abstract growth is pro poor if the poverty measure of interest falls according to this definition there are three potential sources of pro poor growth a a high growth rate of average incomes b a high sensitivity of poverty to growth in average incomes and c a poverty reducing pattern of growth in relative incomes i empirically decompose changes in poverty in a sample of developing countries during the 1980s and 1990s into these three components in the medium to long run most of the variation in changes in poverty can be attributed to growth in average incomes suggesting that policies and institutions that promote broad based growth should be central to the pro poor growth agenda most of the remainder of the variation in changes in poverty is due to poverty reducing patterns of growth in relative incomes rather than differences in the sensitivity of poverty to growth in average incomes cross country evidence provides relatively little guidance as to the policies and institutions that promote these other sources of pro poor growth

can the world cut poverty in half how policy reform and effective aid can meet international development goals abstract poverty in the developing world will decline by about one half by 2015 if the trends of the 1990s persist most of this poverty reduction will occur in asia however while poverty will decline only slightly in africa effective aid could make a contribution to greater poverty reduction in lagging regions even more potent would be significant policy reform in these countries we develop a model of efficient aid in which flows respond to policy improvements that create a better environment for poverty reduction and effective aid we investigate scenarios of policy reform and efficient aid that point the way to how the world can cut poverty in half in every major region

opening a can of worms the pitfalls of time series regression analyses of income inequality this paper argues that time series regression analysis is of only very limited use for understanding the determinants of income inequality the argument is based on a combination of results from the time series econometrics literature and several characteristics of inequality itself principally nonstationarity of the data in most inequality regression models and the weak theoretical foundations underlying the models a sample of postwar us data is used to illustrate the problems involved

does aid affect inequality we show that there was a negative correlation between pro poor aid and inequality in the period before the mid 2000s this article provides an explanation for this observed relationship using pane

growth inequality and poverty looking beyond averages the evidence is compelling that the poor in developing countries do typically share in the gains from rising aggregate affluence and in the losses from aggregate contraction but how much do poor people share in growth do they gain more in some settings than others do some gain while others lose does pro poor growth mean more or less aggregate growth recent theories and evidence suggest some answers but deeper microeconomic empirical work is needed on growth and distributed change only then will we have a firm basis for identifying the specific policies and programs needed to complement and possibly modify growth oriented policies

growth elasticity of poverty direct estimates from recent data using recent poverty data for developing countries elasticity of 2 poverty headcount with respect to the growth of gross domestic product gdp per capita is directly calculated for the 1990s and the 2000s the global estimate is around 0 84 which is much smaller in absolute magnitude than what some highly influential studies have reported or used for the poverty dense south asia region the elasticity is of the order of 0 22 which is a dramatic contrast from the previous estimates for india where the number of poor people is by far the largest of any country and where the poverty rate is higher than even in sub saharan africa ssa the elasticity is of the order of 0 13 which is an even bigger contrast from earlier studies policymakers and researchers are urged to keep these estimates in mind while judging the likely effect of income growth on poverty and to discount poverty reduction claims based on higher elasticity estimates that have been reported or used in many influential studies i

financial development growth and the distribution of income a paradigm is presented in which both the extent of financial intermediation and the rate of economic growth are endogenously determined financial intermediation promotes growth because it allows a higher rate of return to be earned on capital and growth in turn provides the means to implement costly financial structures thus financial intermediation and economic growth are inextricably linked in accord with the goldsmith mckinnon shaw view on economic development the model also generates a development cycle reminiscent of the kuznet hypothesis in particular in the transition from a primitive slow growing economy to a developed fast growing one a nation passes through a stage in which the distribution of wealth across the rich and poor widens

macroeconomic performance and poverty in brazil abstract drawing on brazilian time series data this study finds an inelastic link between poverty and wages over the macroeconomic cycle that is devoid of the asymmetric effects that characterise the phenomenon s response to changes in the rate of unemployment deepening of structural reforms in the second half of the 1990s had no effect on the aforementioned relationships which also varied little by regional level of development finally the connection between poverty and long term income changes was more elastic suggesting an association between the economy s recent disappointing performance in alleviating poverty and its lacklustre growth record over the past two decades

the assessment the twentieth century achievements failures lessons the past century saw unprecedented rises in life expectancy and living standards it also witnessed major structural changes the rise of big government and two globalizations yet the century s economic history was marred by policy and market failures resulting in a massive world wide depression frequent financial crises particularly in the developing world and several inflation spurts central planning set back development for one third of the world s population transition to the market economy was at best slow in some instances disastrous income distribution within countries changed little while productivity convergence between rich and poor economies was virtually absent policy making learnt some lessons from the 1930s experience particularly in the areas of macroeconomic management international cooperation and free trade dogmatic recipes however were often resorted to at home aided and abetted by the pretensions of the economics profession

the trend behavior of alternative income inequality measures in the united states from 1947 1990 and the structural break this article tests the hypothesis that the time series process of income inequality has experienced a structural break the timing of the structural break is treated as an unknown parameter to be estimated from the data because it is not possible to associate a single episodic policy event with the break year and to avoid bias in favor of a unit root hypothesis if the break was near the selected year for several measures of income inequality a segmented trend model is more appropriate to account for the fundamentals affecting the behavior of income inequality as opposed to a stochastic trend model

does microfinance reduce income inequality this study addresses the question whether participation of the poor in microfinance contributes to reducing a country s level of income inequality using data from 70 developing countries we show that higher levels of microfinance participation are indeed associated with a reduction of the income gap between rich and poor people we also show however that the effects of microfinance on reducing income inequality are relatively small the results of this study add to the discussion on the impact of microfinance on poverty by showing that although access to microfinance does seem to improve the relative income position of the poor this improvement is modest which is probably because the use of microfinance is generally small as compared to the size of the economy of the countries in our sample microfinance should therefore not be seen as a panacea for bringing down income inequality in a significant way

a new database on human capital stock in developing and industrial countries sources methodology and results abstract the paper describes the techniques and data adopted for the construction of a new series of estimates of the stock of education in 85 countries over 28 years 1960 1987 the series are built from enrollment data using the perpetual inventory method adjusted for mortality estimates are corrected for grade repetition among school goers and country specific drop out rates for primary and secondary students enrollment data series used start as far back as 1930 for most countries and even earlier for others this reduces the need for backward extrapolation of enrollments to provide the initial estimates of the investment inventory

linkages between pro poor growth social programmes and labour market the recent brazilian experience summary this paper analyzes the relationship between growth patterns poverty and inequality in brazil during its globalization process focusing on the role played by the labor market and social programs methodologically the paper makes two contributions to the literature one is the proposal of a new measure of pro poor growth which links growth rates in mean income and in income inequality the other contribution is a decomposition methodology that explores linkages between three dimensions growth patterns labor market performances and social policies the proposed methodologies are then applied to the brazilian national household survey covering the period 1995 2004

who gains from non collusive corruption non collusive corruption i e corruption that imposes an additional burden on business activity is particularly widespread in low income countries we build a macroeconomic model with credit market imperfections and heterogeneous agents to explore the roots and consequences of this type of corruption we find that credit market imperfections by generating rents for the incumbent entrepreneurs create strong incentives for corrupt behavior by state officials however non collusive corruption not only redistributes income from non officials towards officials but also within the group of potential entrepreneurs if borrowing is limited bribes prevent poorer but talented individuals from starting a business but this is likely to benefit those who may enter anyway the cost of capital is lower and there is less competition on the goods markets

factor shares and savings in endogenous growth in models of steady investment driven growth an individual s propensity to save depends on how much of his income is drawn from accumulated factors of production capital rather than from nonaccumulated factors when agents are heterogeneous in this respect growth oriented policies have distributional consequences and in the absence of lump sum redistribution their implementation faces political constraints if the median voter is capital poor relative to the economy s representative agent political interactions tend to slow down growth when policy acts on capital s income share and tend to accelerate it when investment subsidies are the policy instrument of choice copyright 1993 by american economic association

distributive politics and economic growth a crude distinction between economics and politics would be that economics is concerned with expanding the pie while politics is about distributing it in this paper we analyze the relationship between the two we focus on how an economy s initial configuration of resources shapes the political struggle for income and wealth distribution and how that in turn affects long run growth our main conclusion is that inequality is conducive to the adoption of growth retarding policies we derive this result from a simple political economy model of growth and present cross country evidence consistent with it the key feature of our model is that individuals differ in their relative factor endowments we distinguish between two types of factors an accumulated factor called capital and a nonaccumulated factor called labor growth is driven by the expansion of the capital stock which is in turn determined by individual saving decisions long run growth is endogenous as the aggregate production function is taken to be linearly homogeneous in capital and productive government services taken together the provision of government services is financed by a tax on capital because government services are productive a small tax on

inequality and growth in the united states is there asymmetric response at the state level a previous study that tried to assess the impact of economic growth on income inequality in the u s used state level data and an ardl panel model to conclude that economic growth worsens income in

electoral systems and income inequality abstract the goal of this paper is to determine if electoral systems and inequality are linked using high quality data lis database and simple panel methods we show that when the degree of proportionality of a system increases inequality decreases

inequality and institutions abstract this paper presents theory and evidence on the relationship between inequality and institutional quality we exhibit a model in which the two may dynamically reinforce each other and set to test this relationship with a broad array of institutional measures the double causality between institutional strength and a more equal distribution of income is empirically established using dynamic panel and linear feedback analysis

external sector and income inequality in interdependent economies using a dynamic panel data approach abstract by using a panel of countries for 1960 1995 we show that the intensity of capital controls the exchange rate the type of exports and the volume of trade appear to affect the long run distribution of income

the simultaneous evolution of growth and inequality research on inequality and growth can be divided into two strands one deriving from kuznets and lewis has tried to identify a mechanistic relationship between growth or level of income and inequality the other has tried to find causal explanations of growth and inequality treating each independently in this paper we draw from both strands to test whether growth and inequality are the joint outcomes of other variables and processes we find that simultaneous examination of growth and inequality yields significantly different results and has different consequences for policy from previous independent studies the empirical literature on growth and inequality can be divided into two broad strands one following the pioneering work of kuznets and lewis is motivated by the pessimistic conjecture that the process of growth and development somehow requires increasing inequality at least in the early stages this has led to many efforts to identify a mechanical relationship between the level of development and inequality anand and kanbur 1993 or to determine whether faster growth requires higher or lower inequality the second strand has sought to identify the causal factors influencing the evolution of growth and inequality independently this research has looked either at growth for example barro and sala i martin 1995 or at inequality li et al 1997 but has not tried to identify those factors that might simultaneously influence both growth and inequality 2 thus the literature that looks simultaneously at growth and inequality descending most notably from kuznets 1955 relates them in a mechanistic manner that ignores or minimises the role of other causal factors including policy while the literature that incorporates other causal factors including policies looks independently at growth and inequality neither approach is particularly convincing from a theoretical standpoint the evolution of growth and inequality must surely be the outcome of similar processes in addition neither approach is particularly useful for the policy maker who needs to balance the impact of policies on both growth and distribution in this paper we investigate whether growth and inequality are simultaneously determined and if so whether or not they are subject to

explaining international and intertemporal variations in income inequality this paper explores the propositions that income inequality is relatively stable within countries and that it varies significantly among countries a new and expanded data set provides broad support for both propositions drawing on a political economy and capital market imperfection arguments to explain the intertemporal and international variation in inequality the empirical analysis shows that the predicted variables associated with the first argument a measure of civil liberties and the initial level of secondary schooling and the second argument a measure of financial depth and the initial distribution of land are indeed important determinants of inequality this paper explores two propositions regarding income inequality they are first income inequality is relatively stable within countries and second it varies significantly across countries to illustrate note that the gini coefficient in india remained almost constant for forty years 1951 92 with mean 32 6 and standard deviation 2 0 2 in contrast the variation in gini coefficients across countries is large 61 9 in honduras in 1968 compared with 17 8 in bulgaria in 1976 if substantiated these propositions have potentially significant implications for poverty the significance of the first is obvious barring any fundamental socio political change poverty reduction will depend crucially on the rate of economic growth given this the significance of the second is that in inegalitarian economies the poor will enjoy a smaller share of any national increment in income than in more egalitarian ones drawing on a new and expanded data set on inequality deininger and squire 1996a the first of the paper s three sections conducts standard statistical tests of the two propositions the sample comprises 573 observations on the most common measure of inequality the gini coefficient for 49 developed and developing countries covering the period 1947 94 the results broadly confirm our two propositions specifically analysis of variance anova shows that about 90 of the total variance in the gini coefficients

dynamics of income distribution in this paper we have obtained closed form solutions in cass koopmans growth models with heterogeneous agents the relationship between the form of the production function and the dynamics of income distribution is made explicit we then use this relationship to determine what production structure is simultaneously consistent with facts on growth and income inequality our empirical findings give support to models with decreasing returns in the reproducible factor jel classification d3 o1 o4 dans ce memoire les auteurs obtiennent des solutions pour des modeles de croissance a la cass koopmans dans le cas ou les agents sont heterogenes on explicite la relation entre la forme de la fonction de production et la dynamique de la repartition des revenus on utilise alors cette relation pour determiner quelle structure de production est arrimee aux faits connus a la fois quant a la croissance economique et a la repartition des revenus les resultats empiriques supportent les modeles ou les rendements sur les acteurs de production reproductibles sont decroissants

is foreign aid a vanguard of foreign direct investment a gravity equation approach summary this paper investigates whether and how foreign aid facilitates foreign direct investment fdi flows into less developed countries we employ a large data set of source recipient country pairs and conduct gravity equation type estimation our empirical methodology enables us to examine an effect through which aid from a donor country promotes fdi from the same donor in particular which we call a vanguard effect we find that foreign aid in general does not have any significant effect on fdi however when we allow for differences in the size of aid effects across donor countries we find robust evidence that foreign aid from japan in particular has a vanguard effect i e japanese aid promotes fdi from japan but does not attract fdi from other countries

uneven domestic knowledge bases and the success of foreign firms in the usa this paper investigates the effect of within country and across country inequalities on firms fdi performance and finds drivers of success in an advanced host economy the usa differ for firms from developed compared to developing countries returns to fdi for firms from developed countries are significantly correlated with home countries level of economic development in contrast successful developing country firms are from countries with lower within country inequality and reflect the industrial structure associated with developing countries they are concentrated in scale intensive industries and benefit especially from capital investment the findings suggest that fdi reflects rather than disrupts unevenness in knowledge bases globally

risk bearing and the theory of income distribution this paper develops the stochastic theory of distribution with a dynamic model which focuses on the role of incomplete insurance in generating inequality unlike previous work our approach takes explicit account of the reason for market incompleteness in modeling agents behaviour in particular the amount of risk borne is endogenous using a model of growth with altruism in which agents are risk averse and there is moral hazard we show that lineage wealth follows a markov process which converges globally to an ergodic distribution this also represents the long run population distribution of wealth we discuss the role of particular assumptions such as availability of production loans and unboundedness of utility in yielding the qualitative properties of the distribution of wealth the choice of occupation and the prevention of poverty traps