Unequal Opportunity, Unequal Growth

38 Pages Posted: 12 Oct 2016

See all articles by Gustavo A. Merrero

Gustavo A. Merrero

University of La Laguna

Juan Gabriel Rodriguez

Universidad Complutense de Madrid (UCM) - Department of Applied Economics I (International Economics and Development)

Roy van der Weide

World Bank; World Bank - Development Research Group (DECRG)

Date Written: October 11, 2016

Abstract

This paper argues that inequality can be both good and bad for growth, depending on what inequality and whose growth. Unequal societies may be holding back one segment of the population while helping another. Similarly, high levels of income inequality may be due to a variety of different factors; some of these may be good while others may be bad for growth. The paper tests this hypothesis by ?unpacking? both inequality and growth. Total inequality is decomposed into inequality of opportunity, due to observed factors that are beyond the individual's control, and residual inequality. Growth is measured at different steps of the income ladder to verify whether low, middle, and top income households fare differently in societies with high (low) levels of inequality. In an application to the United States covering 1960 to 2010, the paper finds that inequality of opportunity is particularly bad for growth of the poor. When inequality of opportunity is controlled for, the importance of total income inequality is dramatically reduced. These results are robust to different measures of inequality of opportunity and econometric methods.

Keywords: Equity and Development, Pro-Poor Growth, Achieving Shared Growth

Suggested Citation

Marrero, Gustavo A. and Rodriguez, Juan Gabriel and van der Weide, Roy, Unequal Opportunity, Unequal Growth (October 11, 2016). World Bank Policy Research Working Paper No. 7853. Available at SSRN: https://ssrn.com/abstract=2851251

Gustavo A. Marrero (Contact Author)

University of La Laguna ( email )

38071 La Laguna
Tenerife
Spain
(+34) 922 31 90 00/01 (Phone)

Juan Gabriel Rodriguez

Universidad Complutense de Madrid (UCM) - Department of Applied Economics I (International Economics and Development) ( email )

Spain

Roy Van der Weide

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

World Bank - Development Research Group (DECRG)

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

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