Impact of Income and Gender Inequality on Economic Growth

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• Impact of Income and Gender Inequality on
  Economic Growth
• Stephan Klasen
• University of Göttingen
• Unidea Summer School on Economic Development

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Introduction

• Currently debated hot topic, both at theoretical
  as well as empirical level
• As often, nice theory but unclear which theories
  are empirically most relevant
• Will focus mostly on the empirical debates
• Debates about effects of asset/income inequality
  on growth quite distinct from gender inequality
  effects (and rightly so!)

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Income/Asset Inequality GrowthTheoretical
insights

• Positive effects (see Forbes, 2000 or Barro, 2001
  for a review)
• Savings argument
• Incentive argument
• Comlementarity arguments
• Life boat arguments
• Negative effects (see Deininger and Squire, 1998,
  Alesina and Rodrik, 1994 Galor and Zeira (1993),
  Benabou (1996), etc)
• Capital market failures
• Median Voter and redistribution
• Political/Social Stability Arguments
• Demographic Arguments

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Empirical Problems

• Scarce and incomparable data on inequality
• Relatively little inter-temporal variation in
  income/asset inequality (until recently)
• Reliance on cross-country regressions (with
  limited degrees of freedom)
• Hardly any data to verify different causal
  channels

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What do we know?

• Negative relation between initial inequality and
  growth pretty well documented
• Deininger and Squire (1998) the leading paper
  here
• Confirmed in many follow-up studies
• Asset inequality particularly relevant (but only
  land?)
• But not really relevant for policy-making in
  high- inequality countries Need assessment of
  redistribution on growth!

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Contribution of Forbes (2000) Paper

• Asks the right question by using fixed effects!
• Finds Using fixed effects, higher inequality
  increases growth!
• But serious problems
• Specification issues (Banerjee and Duflo, 2003)
• Problem of low inter-temporal variance
• Focused on short-term effects
• Model too sparse (omitted variable problems!)
• Now have considerable dynamic in inequality
• Better able to test relationship in coming years!

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Gender Inequality and Growth Theory

• Education
• Selection/distortion effect
• Declining marginal returns of education
• Education, employment, growth linkage
• Externalities of female education
• Employment
• Selection/distortion effects
• Governance effects
• Female-intensive growth strategies?
• Externalities of female employment (bargaining)
• Pay Gaps and Growth
• Underpaying females as a competitive advantage
  (Seguino, 2000)
• Inputs and assets in agriculture
• Incentive effects in African agriculture

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Empirics

• Education
• Barros result and its explanation
• Follow up studies by Knowles et al. (2002),
  Klasen (2002), Yamarik and Ghosh (2003),
• Employment/Pay
• Serious data and econometric problems
• Seguino (2000) result
• Klasen-Lamanna (2006)
• Issue far from settled
• Inequalities in Assets/Agriculture
• Just micro studies (e.g. Udry, 1996)
• Still a largely open question

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Figure 2 Real Regional per capita annual growth
rate per decade
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