GROWTH, INEQUALITY AND POVERTY: SOME HARD QUESTIONS

Abstract

This commentary poses a series of progressively harder questions in the economic analysis of growth, inequality and poverty. Starting with relatively straightforward analysis of the relationship between growth and inequality, the first level of hard questions comes when we ask which policies and institutions are causally related to equitable Some progress is being made here by the economics literature, but relatively little is known about the second-level, harder questions--how a society comes to acquire good policies and institutions, and what exactly it is that we are buying into when we accept the number-one Millennium Development Goal of the United Nations--halving the of by the year 2015. The discourse on the economics of growth, inequality and straddles both analysis and policy. Analysts look to the latest policy debates to motivate their (sometimes esoteric) calculations, and are eager to insert their findings into the policy debate (e.g., ... our cross-country regression analysis establishes conclusively that lower tariffs lead to higher growth). Protagonists in policy debates are equally keen to register academic pedigree for different policy positions (e.g., ... Nobel Prize-winning economist X has argued in favor of Y). Policy protagonists and academics find themselves in different camps, each with its own articles of faith and characteristic rhetoric. This is particularly so in the debates on globalization. (1) I want to argue that in the economics of growth, inequality and poverty, and especially where the effects of globalization is concerned, the intersection of analytical and policy debates has belabored some questions the resolutions of which are relatively easy in principle, and it has tended to slide over, or not even recognize, questions that are relatively hard. It is important that we recognize these hard questions, since they often lie at the heart of policy or even analytical discord. Without recognition of the fundamental basis of disagreement, there cannot be fruitful policy or analytical dialogue. DEFINITIONS Let me start with some preliminaries. I am going to confine myself to growth, inequality and defined over income, or monetary value of consumption, following standard practice in economics. It so happens that this is also the focus of the first of the United Nations' Millennium Development Goals (MDGs)--to halve the of so defined, by the year 2015. (2) My purpose in focusing on income poverty is to show that hard questions arise even within this narrow economic perspective. The questions can only get harder as we broaden the frame. Accepting this frame, then, consider the distribution of real across individuals (correcting for price variations, allowing for non-market provision of goods and services, household size, distribution of resources within the household, etc.). There are, of course, conceptual and empirical problems galore in arriving at this distribution and much of the analytical literature centers on these issues, but let us even leave these problems to one side for the moment, to get at the truly hard questions. (3) Given the distribution of we can calculate its mean and the change in this mean over a given time period is the growth in per capita income, or simply growth. A measure of the dispersion in this distribution, such as the coefficient of variation or the Gini coefficient, can and usually does serve as a measure of inequality. Finally, focuses on the lower tail of the distribution. The most common measure is simply the fraction of population below a given poverty-line (the head-count ratio, also known as the incidence of poverty), although in recent years measures which incorporate the depth of have also been used. EASY QUESTIONS AND ANSWERS Here are some mechanical properties of growth, inequality and as defined above. …