Publications  Income Distribution

 

Hypothesis 5:

The Rate of Growth

 

  The rate of growth, according to our hypothesis, should be positively corre­lated with the Gini and negatively with the share of the poorest 40 percent. A high rate of growth is supposed to increase inequality because it requires great rewards for savers, investors, entrepreneurs, technicians, managers, and land-owners, all well-to-do groups. And, indeed, in all but one of the regressions the sign is in the right direction. But in every case the coefficients are very low and not significant. If they were significant and where the sign is right, an increase in the growth rate from 2 percent to 7 percent would raise the Gini at most by .002 or lower the share of the poorest 40 percent by 0.26 percent in the most comprehensive regression (excluding regional variables). These are not important changes and, since they are also not statistically significant, there is no support for the hypothesis that a high rate of growth can be achieved only at the cost of equality.

Here again the reason may lie in the increase in labor income with rapid growth. Where rapid growth is not due to income from primary exports (see below), it is usually accompanied and caused by quite rapid growth in food output, given the importance of agriculture in the economies of LDCs, and in labor-intensive activi­ties, since unskilled workers are the most abundant factor.
That labor-intensive and agricultural developments are favorable for an egalitarian income distribution remains a hypothesis, which needs to be analyzed further, although there is preliminary supporting evidence (see Papanek ). But it does plausibly explain why rapid growth can be followed by either an improve­ment in income distribution or a worsening or no change, depending on the pattern of development. That conclusion is consistent with our results, as with the similarly inconclusive results of earlier studies (e.g. Ahluwalia, Chenery et al., Cline and Papanek ).

 

 

 

 

 

 

 

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