Estimation and Inference for Actual and Counterfactual Growth Incidence Curves

61 Pages Posted: 10 Jan 2017

See all articles by Francisco H. G. Ferreira

Francisco H. G. Ferreira

World Bank - Development Research Group (DECRG)

Sergio Firpo

Insper

Multiple version iconThere are 2 versions of this paper

Date Written: January 5, 2017

Abstract

Different episodes of economic growth display widely varying distributional characteristics, both across countries and over time. Growth is sometimes accompanied by rising and sometimes by falling inequality. Applied economists have come to rely on the Growth Incidence Curve, which gives the quantile-specific rate of income growth over a certain period, to describe and analyze the incidence of economic growth. This paper discusses the identification conditions, and develops estimation and inference procedures for both actual and counterfactual growth incidence curves, based on general functions of the quantile potential outcome process over the space of quantiles. The paper establishes the limiting null distribution of the test statistics of interest for those general functions, and proposes resampling methods to implement inference in practice. The proposed methods are illustrated by a comparison of the growth processes in the United States and Brazil during 1995-2007. Although growth in the average real wage was disappointing in both countries, the distribution of that growth was markedly different. In the United States, wage growth was mediocre for the bottom 80 percent of the sample, but much more rapid for the top 20 percent. In Brazil, conversely, wage growth was rapid below the median, and negative at the top. As a result, inequality rose in the United States and fell markedly in Brazil.

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

Suggested Citation

Ferreira, Francisco H. G. and Firpo, Sergio, Estimation and Inference for Actual and Counterfactual Growth Incidence Curves (January 5, 2017). World Bank Policy Research Working Paper No. 7933. Available at SSRN: https://ssrn.com/abstract=2895517

Francisco H. G. Ferreira (Contact Author)

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

1818 H. Street, N.W.
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Washington, DC 20433
United States
202-473-4382 (Phone)

Sergio Firpo

Insper ( email )

R Quata 300
Sao Paulo, 04542-030
Brazil

HOME PAGE: http://https://sites.google.com/site/sergiopfirpo/

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