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Inequality and Growth: What Can the Data Say

By Abhijit V. Banerjee and Esther Duflo

Abstract

This paper describes the correlations between inequality and the growth rates in crosscountry data. Using non-parametric methods, we show that the growth rate is an inverted U-shaped function of net changes in inequality: Changes in inequality (in any direction) are associatedwithreducedgrowthinthenextperiod. Theestimatedrelationshipisrobustto variations in control variables and estimation methods. This inverted U-curve is consistent with a simple political economy model but it could also reflect the nature of measurement errors,and,ingeneral,efforts to interpret this evidence causally run into difficult identification problems. We show that this non-linearity is sufficient to explain why previous estimates of the relationship between the level of inequality and growth are so different from one another.

Year: 2003
OAI identifier: oai:CiteSeerX.psu:10.1.1.353.1305
Provided by: CiteSeerX
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