A Normal Relationship? Poverty, Growth, and Inequality

31 Pages Posted: 17 Jan 2006

See all articles by Humberto Lopez

Humberto Lopez

World Bank - Research Department

Luis Servén

World Bank - Development Research Group (DECRG)

Date Written: January 2006

Abstract

Using a large cross-country income distribution dataset spanning close to 800 country-year observations from industrial and developing countries, the authors show that the size distribution of per capita income is well approximated empirically by a lognormal density. The null hypothesis that per capita income follows a lognormal distribution cannot be rejected - although the same hypothesis is unambiguously rejected when applied to per capita consumption. The authors show that lognormality of per capita income has important implications for the relative roles of income growth and inequality changes in poverty reduction. When poverty reduction is the overriding policy objective, poorer and relatively equal countries may be willing to tolerate modest increases in income inequality in exchange for faster growth - more so than richer and highly unequal countries.

JEL Classification: C12, C23, D31, I32

Suggested Citation

Lopez, Humberto and Servén, Luis, A Normal Relationship? Poverty, Growth, and Inequality (January 2006). World Bank Policy Research Working Paper No. 3814. Available at SSRN: https://ssrn.com/abstract=875680

Humberto Lopez (Contact Author)

World Bank - Research Department ( email )

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

Luis Servén

World Bank - Development Research Group (DECRG)

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

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