Inequality of Opportunity and Economic Growth: How Much Can Cross‐Country Regressions Really Tell Us?

28 Pages Posted: 16 Nov 2018

See all articles by Francisco H. G. Ferreira

Francisco H. G. Ferreira

World Bank - Development Research Group (DECRG)

Christoph Lakner

World Bank - Development Research Group (DECRG); University of Oxford - Department of Economics

Maria Ana Lugo

World Bank

Berk Özler

World Bank

Date Written: December 2018

Abstract

Income differences arise from many sources. While some kinds of inequality, caused by differential rewards to effort, might be associated with faster economic growth, other kinds, arising from unequal opportunities for investment, might be detrimental to economic progress. This study uses two new datasets, consisting of 117 income and expenditure household surveys and 134 Demographic and Health Surveys, to revisit the relationship between total inequality and economic growth. In particular, we ask whether inequality of opportunity, driven by circumstances at birth, has a negative effect on subsequent growth. Using the income and expenditure micro dataset, we find that while both total income inequality and inequality of opportunity are negatively associated with growth, the coefficient estimates are insignificant. The evidence is similarly equivocal using the Demographic and Health Surveys data. On balance, the data do not provide support for the hypothesis that inequality of opportunity is bad for growth.

Keywords: economic growth, inequality, inequality of opportunity

Suggested Citation

Ferreira, Francisco H. G. and Lakner, Christoph and Lugo, Maria Ana and Özler, Berk, Inequality of Opportunity and Economic Growth: How Much Can Cross‐Country Regressions Really Tell Us? (December 2018). Review of Income and Wealth, Vol. 64, Issue 4, pp. 800-827, 2018. Available at SSRN: https://ssrn.com/abstract=3285389 or http://dx.doi.org/10.1111/roiw.12311

Francisco H. G. Ferreira (Contact Author)

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

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
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202-473-4382 (Phone)

Christoph Lakner

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

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

HOME PAGE: http://www.worldbank.org/en/about/people/christoph-lakner

University of Oxford - Department of Economics

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom

Maria Ana Lugo

World Bank ( email )

Berk Özler

World Bank

1818 H Street, NW
Washington, DC 20433
United States

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