14 The report, which dedicates four chapters to these themes only briefly mentioned here, insists that appropriate policy recommendations can only be made with an adequate understanding of the local context. The question of whether the highest social return to a marginal dollar – even once the full benefits of equity are taken into account – accrues to improving the rural road network or expanding a conditional cash transfer scheme clearly _cannot_ be answered in the abstract. The answer to any such question will surely depend on specific conditions in the country. In some cases, a priority for both efficiency and equity reasons will lie in reforming a captured and corrupt financial system. In others, it may be that the marginal dollar should be returned to the tax-payer, in the form of lower taxes. In others yet, the expected long-term returns on a publicly-funded expansion in basic health care may be so high, that taxes may need to rise.

Such context specificity, while rather fashionable these days, has serious implications of its own for applied research. If the concept of opportunity sets, and the distribution of opportunities, really turn out to matter for development policy, considerable progress will be needed in their measurement. We close this paper with a suggestion of three areas where further applied research would be helpful, if policymakers are to be presented with evidence on the basis of which better-informed decisions can be made.

_Measurement of inequality of opportunities_ is surely one of them. If opportunities are perfectly correlated with incomes – or wealth – then clearly one just needs to measure those variables accurately. The hypothesis that is often proposed, however, is that the determinants of opportunity are many, so that the partial correlation with any one of them is imperfect. Wealth may very well affect opportunities but so, the argument goes, do race, disability, gender, caste, place of birth, etc. If that is so, can one compute acceptable summary indicators of this ex-ante set of potential outcomes? Initial attempts have been made, but the area is in its infancy, and more work is needed.<sup>14</sup> Since inequality of opportunity is closer to the concept of distribution that is relevant to the theoretical literature on inequality and growth than income inequality, a related question is whether turning to such an indicator might shed light on the inconclusive empirical cross-country literature on the subject. While most cross-section regressions of growth on initial income inequality (with controls) have returned negative and significant coefficients on inequality, most panel regressions of growth on lagged, time-varying income inequality (with controls) have returned positive and significant coefficients.<sup>15</sup> If we were able to measure inequality of opportunity directly for a number of countries, so that one no longer needed to rely on income inequality as a proxy, would the crosscountry result shed light on the ‘macroeconomic’ effect that corresponds to the microeconomic impacts identified through studies such as those discussed in Section 3? The question remains open.

> 14 See Bourguignon, Ferreira and Menéndez (2003), Cogneau and Gignoux (2005) and O’Neill, Sweetman and Van de Gaer (2000).

15 See Bénabou (1996) for a survey of the cross-section results, Forbes (2000) and Li and Zou (1998) for two influential panel studies, and Banerjee and Duflo (2003) for a possible interpretation of the differences.