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7/23/2019 DW Levan Growth

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Inequality and Growth

RevisitedRobert J. Barro

Presentation prepared by

Levan Bzhalava

WARSAW UNIVERSITY



Outline

I. Measures of incoe inequality !Gini coe"cient#II. $uznets hypothesis

III. Previous %tudy !&'''#

I(. )he present analysis !January &''*#

(. Incoe+Inequality ,ata

(I. -stiated $uznets urves

(II. Inequality as a ,eterinant of -conoic Growth

(III. oncludin/ 0bservations

I1. Is Inequality 2arful for Growth3



I. Measures of incomeinequality

Gini coefcient + ost

proinently used as aeasure of inequality ofincoe distribution or

inequality of wealthdistribution. It is de4ned as aratio with values between 'and 5.

Gini 6 1 perfectinequality

Gini 6 0 perfect equality

source: www.wikimedia.org



Gini Map &''*

source: www.wikimedia.org



II. Kuznets hypothesis

• -conoic inequality increases over tie7 then ata critical point it be/ins to decrease



Kuznets Curve

• 8hy in poor countries econoic/rowth increases inequality and inrich countries econoic /rowth

decreases inequality3

8hy3



Kuznets Curve

8hy3

• -conoic developent+includin/ shifts froa/riculture to industry and services and the

adoption of new technolo/ies+initiallybene4ts ainly a inority of the population.

• 9s the new ethods of production becoewidespread7 the bene4ts fro econoic

developent are shared ore evenly7 andhi/her per capita G,P tends to reduceinequality.



III. Previous Study!arro"000#

Inequality and $ro%th• )he e:ect of G,P on inequality inverse+;+shaped !as the $uznets curve#.

• %tartin/ fro a low value G,P + inequality

• Relation <attened out at su"ciently hi/h per capita G,P

• =urther increases tended to reduce inequality.

• Previous results con4red the presence ofthe $uznets curve across countries and

over tie. !2owever7 the curve did not e>plain a lar/e fraction of theobserved variation in incoe inequality#



I&. 'he present analysis

• ;pdates the previous cross+countryresearch

Motives?

• Globalization

• International trade



&. Income(Inequality)ata

• Previous study +8orld Ban@As ,einin/er and%quire !5C# data set

• )he present wor@ D 8orld Incoe Inequality

,atabase fro May &''E copiled by the;nited Fations !;F#. !Better international inforation on

incoe inequality#

'he num*er of country o*servations+

,- + 5C's

+ 5E's7 /0 + 5*'s7

1"0 + 5's7

/" + &'''s



Incoe inequality for worldavera/es 5C's + &'''s

The table considers three standard measures of income inequality: the Gini

coefficient; the share of income going to the lowest quintile of the income

distribution and; the share going to the highest quintile.



&I. stimated KuznetsCurves



-stiated $uznets urves

-:ect on the Gini coe"cient

• Positive fro lo/ !per capita G,P#

• Fe/ative fro the square of the lo/ !per

capita G,P#

• Positive fro openness variable!ore trade creates ore incoe inequality#



&II. Inequality as a)eterminant of conomic

$ro%thCross-country growth regressions



Inequality as a ,eterinantof -conoic Growth

• )he Gini variable is si/ni4cantly ne/ative.

• )he ipact of inequality on /rowth is ostne/ative for the poorest countries + the

si/ni4cantly positive coe"cient ofinteraction ter

• 9t hi/her per capita G,P e:ect ofinequality on /rowth ay becoe positive.

“Inequality is bad or ro!t" in #oorcountries and ood in ric" countries$



,e Gre/orio and Lee !&''#

• Incoe inequality a:ects econoic /rowthindirectly by in<uencin/ other deterinants of/rowth

• Inequality raises fertility and lower secondaryschool enrollent and the rule of law

Greater inco%e inequality !ould lo!erecono%ic ro!t"

Not in De Gregorio and Lee (2004)• 2i/her incoe inequality leads to lower

life e>pectancy



&III. ConcludinO*servations

• -:ects on inequality is positive frointernational openness.

But enhanced trade can lower poverty even if incoe inequalityrises.

• Fe/ative e:ect fro incoe inequality oneconoic /rowth



&III. ConcludinO*servations

• -:ect of inequality on /rowth diinishesas per capita G,P rises and ay bepositive for the richest countries.

• Growth is encoura/ed by /reaterinternational openness7 hi/her lifee>pectancy7 better rule of law7 and lowerfertility.



IX. Is Inequality Harmful

for Growth?



8hy do we care aboutinequality3

• %ociopolitical Instability In poor countries hi/h Inequality /enerates sociopolitical

con<ict that are detriental for /rowth

• Incoe redistribution and redit+ar@etfailures

More credit+constrained people eans lower investent and/rowth

In case of hi/h inequality redistribution is necessary

2i/h redistribution ay reduce incentives to accuulate + iply

less /rowth



%ociopolitical Instability



HGood and Bad Inequalities

• Good inequality increase incentivesfor innovation7 entrepreneurship andeconoic /rowth.

• Bad inequality creates obstacles forpoor people to receive education andto access credit7 that ipedienteconoic developent



Supplementary sources

• Martin Ravallion !&''E#7 H-conoic Growth is Fot an 9ntipoverty Policy7,evelopent Research Group 8orld Ban@. onference? H)a@in/ 9ction for the8orldAs Poor and 2un/ry Peoplewww.ifpri.org/2020chinaconference/day/presentations/!-2"#$a%a&&ion.ppt

• Lina )olvaisaite7 $atharina Maier7 )aara )schentscher7 HIncoe Inequality and,evelopent &ehre.wiwi.hu-'er&in.de/rofessuren/%w&/fw/&ehre/ws00*/.../inco+e"ine,ua&ity"and"de%e&op+ent"

se+inar"20""200.p• Maria 9na Lu/o7 HInequality and 2uan ,evelopent ;niversity of 0>ford

hdr.undp.org/en/+edia/ne,ua&ity20and20u+an20De%e&op+ent20

• Inequality Growth

persona&.rhu&.ac.u1/u&te/0/3C/ine,ua&ityGrowth&ecture5.ppt

• 2uberto Lopez Hro poor growth6 7 re%iew of what we 1now (8and of what we

don9t) )he 8orld Ban@7 PRMPR + www.nade&.eth:.ch/&ehre/ppg"re%iew.pdf• Dr . aight + ;200. nco+e ne,ua&ity . 3con 2/22. 3cono+ic De%e&op+ent .

www.chaight.co+/<1202203220and202220nco+e20... -

• Gini Map + source6 www.wi1i+edia.org

• Photos sources? www.fotosearch.co+/photos-i+ages



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