Income Dispersion Research Articles

New evidence on the convergence of international income from a group of 29 countries

This paper updates and extends the time-series evidence on the convergence of international incomes using a set of 29 countries over the period 1900–2001. Time-series tests for stochastic convergence are supplemented with tests which provide evidence on the notion of “β-convergence” predicted by the Solow model. The evidence indicates that the relative income series of 21 countries are consistent with stochastic convergence, and that β-convergence has occurred in at least 16 countries at some point during the twentieth century. Further examination of the properties of the β-convergence test provides anecdotal evidence of conditional convergence in three additional countries for which the convergence hypothesis was initially rejected. Consideration of convergence clubs strengthens the evidence in favor of convergence. Analysis of the cross-country dispersion of incomes over time also suggests that convergence has occurred over the 1900–2001 period, particularly within certain clubs, with structural breaks associated with World War II in many countries causing a break in the convergence process.

Labor Market Integration and Migration: Impacts on Skill Formation and the Wage Structure

We analyze the impacts of labor market integration and migration on skill formation, wage structures, and per capita GDP of host and source countries. To do so, we propose a model in which heterogeneous agents invest in the acquisition of skills, and in which final good production exhibits increasing returns to scale in the range of available skills. Labor market integration, by allowing for migration in response to wage differentials, changes the wage structures and, therefore, the incentives to become skilled in both host and source countries. We show that our model can largely replicate the empirical evidence concerning international migration, the widening international income dispersion, the narrowing national income dispersion, and the divergence in the rates of skill formation in host and source countries.

Globalization, returns to accumulation and the world distribution of output

This paper examines the extent to which the process of globalization can explain the observed widening in the cross-country distribution of output-per-worker. On the theoretical front the model highlights why, when the labor market is subject to a holdup problem, the opening up of trade will cause an increase in the dispersion of income across countries similar to that observed in the data. The increase in dispersion in the model arises due to the emergence of a discrepancy between the private and social returns to capital accumulation that favors capital abundant countries. On the empirical front, we document the relevance of the model by examining whether growth patterns, decomposition exercises and specialization patterns support the model's predictions. Overall we find that over 50% of the recently observed increase in income dispersion across countries can be accounted for by the mechanism exemplified by the model.

Understanding Changes in Māori Incomes and Income Inequality 1997-2003

This paper reports findings from a study of changes in Māori income levels and income dispersion between 1997 and 2003. Data from Statistics New Zealand's Income Survey are used to describe and evaluate the main changes in the Māori income distribution in this period, which was marked by substantial increases in employment rates and improvements in the skill levels of working-aged Māori. A parallel analysis of the main changes in the European/Pākehā income distribution is provided for comparative purposes. The results show significant reductions in the proportion of Māori with no weekly income in the reference week, or incomes of $150-200 a week, and significant increases in the proportion with incomes above the peak income level of approximately $550 per week. Income inequality within the total working-aged Māori population declined, while income inequality among employed Māori was stable. An analysis of some of the key factors contributing to change in the income distribution suggests that the transition of many Māori into employment during this period was the single most important driver of change.

ECONOMIC DEVELOPMENT UNDER ALTERNATIVE TRADE REGIMES*

How does openness affect economic development? This question is answered in the context of a dynamic general equilibrium model of the world economy, where countries have technological differences that are both sector neutral and specific to the investment goods sector. Relative to a benchmark case of trade in credit markets only, consider (i) a complete restriction of trade and (ii) a full liberalization of trade. The first change decreases the cross‐sectional dispersion of incomes only slightly, and produces a relatively small welfare loss. The second change, instead, decreases dispersion by a significant amount, and produces a very large welfare gain.

Empirical evidence of income dynamics across EU regions

AbstractThis paper analyses the distribution of purchasing power standardized per capita income across EU‐12 regions between 1977 and 1996. Dispersion of incomes between regions is measured taking into account their population sizes. The cross‐sectional distributions are initially described by weighted kernel density estimates, revealing a multimodal structure of the distributions, less evident over the period. This evidence is supported by a bootstrap test. To detect homogeneous groups of regions, the empirical distributions are approximated by a finite mixture of normal densities. The components of the mixture represent clusters of poor/rich regions, while the mixing proportions the allocation over the poor and the rich components. The number of components is assessed by a bootstrap LR test, and the goodness of fit by a kernel density‐based test. Income mobility is modelled by the stochastic kernel, the continuous counterpart of the transition probability matrix. The main implication is a very slow process of catching up of the poorest regions with the richer ones and a process of shifting away of a small group of very rich regions. This evidence is reflected in the shape of the ergodic distribution, which is well fitted by a two‐component mixture model. Copyright © 2006 John Wiley & Sons, Ltd.

INCOME DISPERSION AND PRICE DISCRIMINATION

Abstract. This paper analyses the effects of inter‐market and intra‐market income heterogeneities on output and social welfare under uniform pricing and differential pricing regimes by considering a finite number of markets. We first derive the linear demand curve in each market under plausible conditions, and then show that more markets (and consumers) are excluded under uniform pricing the higher are the inter‐market income differences. We also show that adding markets, even of lower income levels than those of existing markets, helps to decrease prices and thus cause more markets to be served. Implications of intra‐market income dispersion are also explored.

Do Public Goods Explain the Relationship Between Income Inequality and Birthweight?

That income and socioeconomic status (SES) enter the child health production function and offer protective benefits to health is fairly well established in the economics literature. What has been debated is whether income inequality, or the dispersion of income in a society has a detrimental effect on health outcomes. This paper examines the relationship between income inequality at the state and county levels and infant health, and delves into one causal pathway through which inequality may operate upon health. The so-called neo-materialist relationship between inequality and health argues that the impact of income inequality operates upon health mainly because inequality affects the distribution of resources. The detrimental effect of inequality is thus posited to be detrimental to health through reduced provision of public goods. This paper addresses the question: Does the provision of public goods such as education and health care explain the relationship between income inequality and birthweight? In order to answer this question I estimate three sets of regressions. The first estimates the relationship between income inequality and public goods. The second set of regressions tests the magnitude of the relationship between child health and public goods such as the supply of hospitals and hospital beds, and government expenditures on health and education. The final set of regressions examines whether the inclusion of public goods as explanatory variables changes the income inequality effect on birthweight. Individual data is taken from 1991 and 2001 Natality Detail Files, while data for inequality measures and community characteristics are obtained from the decennial Censuses. Information on public goods and services are obtained from a variety of sources including the Annual Survey of Government Finances and the Area Resource File. I find that public goods are positively correlated with birthweight; and contrary to expectation, results suggest that income inequality is associated with higher public goods. Moreover, the inclusion of public goods measures as controls strengthens the relationship between income inequality and birthweight. To the extent that income inequality causally increases public goods, public goods potentially dampen the negative effect of income inequality on birthweight. Studies that do not take into account the public goods affect may underestimate the negative effect of inequality on birthweight.

Vertical Differentiation: Multiproduct Strategy to Face Entry?

In this paper, we consider an incumbent firm facing potential entry in a vertical differentiation model a la Mussa and Rosen where consumers differ only by their intensity of preference for quality. We ask whether the incumbent firm has the incentive to adopt a multi-product strategy in order to face entry, in a natural duopoly case. It turns out that this strategy is never profitable and that an incumbent always prefers to produce one quality. It appears that either a cost effect or an income dispersion are necessary to urge producers to offer several products.

Endogenous Productivity and Development Accounting

Cross-country data reveal that the per capita incomes of the richest countries exceed those of the poorest countries by a factor of thirty-five. We formalize a model with embodied technical change in which newer, more productive vintages of capital coexist with older, less productive vintages. A reduction in the cost of investment raises both the quantity and productivity of capital simultaneously. The model induces a simple relationship between the relative price of investment goods and per capita income. Using cross-country data on the prices of investment goods, we find that the model does fairly well in quantitatively accounting for the observed dispersion in world income. For our baseline parameterization, the model generates thirty-five-fold income gaps and six-fold productivity differences between the richest and poorest countries in our sample.

Is there a “real divergence” in the European Union? A comment

In a recently published paper, Hein and Truger [Hein, E., Truger, A., 2005. European monetary union: nominal convergence, real divergence and slow growth? Structural Change and Economic Dynamics 16, 7–33], state that real per capita income in the European Union has developed a long-run process of divergence (real divergence). We discuss their approach towards measuring cross-national income inequality and its evolution over time, and argue that there are good reasons to pursue alternative procedures. We show that alternative measures yield different conclusions concerning the convergence/divergence of prosperity across the EU. Especially, as the divergence result is driven by one or two countries with almost negligible population shares, accounting for population size implies that cross-national income dispersion in the EU has decreased at least since the mid-1990s.

Private school location and neighborhood characteristics

Using data from Illinois, I examine relationships between the number of private schools and characteristics of the public schools and surrounding population. I find positive, statistically significant relationships between number of private schools in 1998 and public school 3rd grade class size, the percent college educated, and the percent over 55 years of age. I find significant negative relationships between number of private schools and average household income and racial concentration. Looking at private school entry, areas with larger increases in the school-aged population had less entry, and areas with increasing income dispersion experienced greater entry. The results suggest that if a universal education voucher program is introduced, parents in relatively well-educated, racially diverse, and more moderate income areas will likely have greater access to private school options because of more existing private schools in their area. These areas will also likely have more private school entry in response.

Public Policy, Economic Inequality, and Poverty: The United States in Comparative Perspective*

Objective. This article compares recent levels and trends in economic inequality in industrialized nations, largely those belonging to the Organization for Economic Cooperation and Development. We also examine the effects of government policies and social spending efforts on inequality.Method. We use data from the Luxembourg Income Study and the U.S. Congressional Budget Office to measure disposable money income on an annual basis for 30 nations around the end of the 20th century. We also convert the incomes of a set of rich nations into real 2000 U.S. dollars, using a standard measure of purchasing power parity to examine absolute differences in income inequality.Results. The United States has the highest overall level of inequality of any rich OECD nation at the beginning of the 21st century. Moreover, increases in the dispersion of total household income in the United States have been as large as, or larger than, those experienced elsewhere between 1979 and 2002. Government policies and social spending have lesser effects in the United States than in any other rich nation, and both low spending and low wages have a great impact on the final income distribution, especially among the nonelderly.Conclusion. We speculate on the role policy plays in the final determination of income inequality. We argue that these differences cannot be explained by demography (single parents, immigrants, elders) but are more likely to be attributed to American institutions and lack of spending effort on behalf of low‐income working families.

Is there convergence in income inequality levels among the European regions?

The regional distribution of income inequality in the European Union between 1993 and 1998 is examined. The results obtained reveal the existence of a process of convergence in regional inequality levels over the period analysed. This was due basically to the reduction in income dispersion that took place in regions registering relatively high levels of inequality in 1993. Polarization in the distribution under study is also found to decrease, irrespective of the number of groups considered. Nevertheless, since the observed level of intradistributional mobility is low, the European regions tend, over time, to maintain their relative positions in terms of inequality. Finally, the analysis carried out highlights the relevance of the national component in explaining the dynamics of regional inequality distribution.

Industrial Shift, Skill Mismatch and Income Inequality: A Decomposition Analysis of Changing Distributions in the Oslo Region

This paper examines changing income inequality in the Oslo region between 1993 and 2000. Adopting a decomposition approach, the analysis reveals that both earnings inequality and post-tax inequality remained stable across educational groups, a finding that contradicts skill mismatch theory. Arguments relating to industrial shift turn out as more relevant: there is a clear dispersion of earnings and a substantial dispersion of post-tax income in certain industries, specifically producer services, high-tech distribution and, more ambiguously, high-tech manufacturing. The change is concentrated at the top end of the distribution and appears to reflect a combination of unbalanced growth, labour market environments and tax policy. It is suggested that Oslo during the transformation to a post-industrial economy is increasingly departing from Norwegian egalitarianism.

A MODEL OF MONOPOLISTIC COMPETITION WITH PERSONAL INCOME DISPERSION

We introduce non-homothetic preferences in the Dixit-Stiglitz model of monopolistic competition, and enquire about the eects of a change in income dispersion on the …rms' optimal decisions and market equilibrium. Income dispersion, modelled as a mean preserving spread, is shown to aect only the degree of product dierentiation under the standard hypothesis on the …rms' decision making process, while it generates a positive co-movement of demand and demand elasticity, when the negligibility assumption is re- moved and the price index eect is taken into account. JEL Classi…cation no: D31, L11, L16.

ALAŞEHİR İLÇESİNİN TARIMSAL YAPISI VE PLANLAMASINA DAİR ÖNERİLER Agricultural Structure of Alaşehir Sub-province and Suggestions for Planning

Alasehir sub-province has very good topography, soil, and climate for growing of agricultural products. Except, bananas, hazelnuts, and tea all agricultural products are grown in Alasehir. But, this sub-province is very famous for its sultana grapes and 1/3 of the exported production of sultana grapes are produced here. The economy of Alasehir is completely based on agricultural sector, and vineyards cover almost half of the agricultural area. In the 55 small town and 5 villages of Alasehir are cultivating sultana grapes, and viniculture is one of the most income sources. In addition to this, income dispersion of sub-province is out of balance, and income dispersion is changing according to topography. Furthermore Alasehir sub-province has some problems like irrigation, unbalanced income dispersion, and sustainable development. For solving these problems, it needs sustainable agricultural development planning

Economic development and growth in the world economy

This paper investigates whether technological shocks, constructed to be consistent with the observed cross-country income dispersion, are also capable of accounting for development regularities related to capital accumulation. This question is approached via a quantitative theoretical analysis of an integrated world economy model. An open economy framework constrains country heterogeneity to be consistent with international capital flows. Moreover, it enables the study of distinctively open economy development facts. The model produces time-invariant cross-sectional distributions for development variables, whose properties are quantitatively compared with the Penn World Table data set. The model generates too little dispersion in capital-output ratios and investment rates. However, it is consistent with the relative importance of investment, saving, and international capital flows for economic development.

Convergence across Indian States: A Re-evaluation

In this paper, we examine the growth convergence hypothesis within a developing country. Across Indian states, income dispersion has widened in recent years. Some new methods that are used by many researchers for studies across countries or across U.S. regions are applied, and we find that almost all income sequences in the Indian states have unit roots. This result implies that, although India achieved relatively high growth in the 1990s, per capita income across states tended to diverge, and that income dynamics within a developing country may differ from those within a developed country.

Does convergence cause trade, or does trade cause convergence?

This paper examines the direction of causality between international trade and cross-country income differences in several ways. First, instruments for income are used in pooled gravity regressions to determine the effect of income differences on bilateral trade, and instruments for trade are used in regressions to determine the causes of income dispersion. Results of these cross-country estimations show that more similar countries trade more, while trade appears to increase dispersion. However, fixed-effects regression, random-effects regression, and Granger causality tests show that trade reduces income differences over time. Thus, while the postwar era has seen increasing trade and conditional convergence, the causality is bi-directional: convergence causes trade, and trade causes convergence.