Why is Inequality Back on the Agenda?
By Ravi Kanbur, Nora Lustig (04/99, En) See also Poverty and Inequality
The turn of the century has seen a resurgence of interest in inequality which is the culmination of several trends in the analytical, empirical and policy literature. First, as the real world features of imperfect information and imperfect markets have been recognized and incorporated into the analytical framework, gone are the days where everybody accepted that there was always an inevitable trade-off between efficiency and equity. An implication of the latter is that there are policies that can result in both higher growth and lower inequality. Second, aggregate measures of inequality have changed dramatically for some countries in the last decade and inequality has not changed much for others.
Why countries facing broadly similar global circumstances have had such widely different experiences on inequality change? What is it about the domestic circumstances that has led to these divergences of outcome? Recent empirical work shows how the evolution of overall inequality is the evolution of markets, assets and institutions, overlaid on basic demographic shifts. Understanding these forces is the real challenge which takes us beyond the simple lack of a correlation between aggregate inequality and per capita income. Third, the lack of convergence between poor and rich countries has put the issue of inequality among nations back on the agenda. In the last decade this has led to a rich literature on what determines relative growth rates, whether growing inequality between nations is inevitable, and under what circumstances foreign aid is effective in overcoming poverty traps at the country-level.
This paper was prepared for the Annual Bank Conference on Development Economics, World Bank, Washington, DC, April 28-30, 1999.
Last updated: 05/08/07
