Uneven Growth: A Framework for Research in Development Economics

The textbook paradigm of economy-wide development rests on the premise of "balanced growth"; that is, on the presumption that all sectors will grow in unison over time as a country gets richer. This view has served us reasonably well in some circumstances, but is not particularly useful for accounts of modern (under)development.In many developing countries, economic growth has been fundamentally uneven: software development, the outsourcing of services, sectoral technological change, quick compositional shifts between agriculture and other sectors, the rise of particular exports, "special" economic zones, and so on. This paper will discuss both the sources of uneven growth, and its implications, with greater emphasis on the latter. The paper will argue that much of the distributional issues, or the reactions to globalization that we see in modern developing societies can be viewed as reactions to a growth process that is fundamentally uneven and is indeed perceived as such.Balanced Growth; Economic Development; Globalization

Linking Conflict to Inequality and Polarization

In this paper we study a behavioral model of conflict that provides a basis for choosing certain indices of dispersion as indicators for conflict. We show that the (equilibrium) level of conflict can be expressed as an (approximate) linear function of the Gini coefficient, the Herfindahl-Hirschman fractionalization index, and a specific measure of polarization due to Esteban and Rayconflict, polarization, inequality

A Comparison of Polarization Measures

This paper provides a systematic classification of the different measures of polarization based on their properties. Together with the axioms proposed in Duclos, Esteban and Ray (2004) and in Wang and Tsui (2000) we consider three additional properties. We examine which properties are common to all indices and which set them apart.

On the Phelps-Koopmans Theorem

We examine whether the Phelps-Koopmans theorem is valid in models with nonconvex production technologies. We show by example that a nonstationary path that converges to a capital stock above the smallest golden rule may indeed be efficient. This finding has the important implication that "capital overaccumulation" need not always imply inefficiency. We provide general conditions on the production function under which all paths that have a limit in excess of the smallest golden rule must be efficient, which proves a version of the theorem in the nonconvex case. Finally, we show by example that a nonconvergent path with limiting capital stocks bounded above (and away from) the smallest golden rule can be efficient, even if the model admits a unique golden rule. Thus the Phelps-Koopmans theorem in its general form fails to be valid.

Aspirations and the development treadmill

I describe a positive theory of socially determined aspirations, and some implications of that theory for the study of economic inequality and social conflict. The main contribution of the theory is that it attempts to describe, in the same explanatory arc, how a change in aspirations can be inspirational in some circumstances, or a source of frustration and resentment in others. These different reactions arise from the aspirational gap: the difference between socially generated aspirations and the current socio-economic standard that the individual enjoys. Ever-accelerating economic development can cut both ways in terms of inspiration and frustration

A Model of Ethnic Conflict

We present a model of conflict, in which discriminatory government policy or social intolerance is responsive to various forms of ethnic activism, including violence. It is this perceived responsiveness ? captured by the probability that the government gives in and accepts a proponed change in ethnic policy?that induces individuals to mobilize in support for their cause. Yet, mobilization is costly and demonstrators have to be compensated accordingly. Individuals have to weigh their ethnic radicalism with their material well-being to determine the size of their money contribution to the cause. Our main results are: (i) a one-sided increase in radicalism or in population size increases conflict; (ii) a one-sided increase in income has ambiguous effects depending on the elasticity of contributions to income; (iii) an increase in within-group inequality increases conflict; and (iv) an increase in the correlation between ethnic radicalism and inequality also increases conflict.

Persistent Inequality

Existing literature explains persistent inequality either by ongoing shocks to abilities or preferences, or by a combination of technological indivisibilities, capital market imperfections and ad hoc assumptions concerning savings behavior. We focus on the role of pecuniary externalities - driven by endogenous movements in relative prices - in explaining both the emergence and persistence of long-run inequality. With imperfect capital markets, it turns out that long-run inequality is inevitable, even if investments are divisible, agents maximize dynastic utility, and there are no random shocks. However, the divisibility of investment does matter in determining the multiplicity of steady states: with perfect divisibility such multiplicity typically disappears. We subsequently characterize efficient steady states, and study non-steady-state dynamics in a two occupation context.

Contractual Structure and Wealth Accumulation

This paper examines incentives of poor agents to escape poverty by saving. Owing to limited liability, low wealth creates borrowing constraints, preventing the poor from being able to finance productive projects. Future wealth increases resulting from current saving would relax these borrowing constraints, raising future productivity and incomes, thus providing a possible channel of upward mobility. However, the extent to which these benefits accrue to the agents themselves depends on the allocation of bargaining power with their lenders (or landlords). If agents have no bargaining power, the returns to saving of poor agents are appropriated entirely by lenders, resulting in poverty traps. In this case the long run wealth distribution becomes polarized into two classes, with no middle class and no interclass mobility. If on the other hand the agents have all the bargaining power then the returns to saving accrue to them entirely, and agents accumulate wealth indefinitely irrespective of initial conditions.

Aspirations and inequality

This paper develops a theory of socially determined aspirations, and the interaction of those aspirations with growth and inequality. The interaction is bidirectional: economy-wide outcomes determine individual aspirations, which in turn determine investment incentives and social outcomes. Thus aspirations, income, and the distribution of income evolve jointly. When capital stocks lie in some compact set, steady state distributions must exhibit inequality and are typically clustered around local poles. When sustained growth is possible, initial histories matter. Either there is convergence to an equal distribution (with growth) or there is perennial relative divergence across clusters, with within-cluster convergence. A central feature that drives these results is that aspirations that are moderately above an individual's current standard of living tend to encourage investment, while still higher aspirations may lead to frustration