Revisiting the debate on inequality and economic

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Revisiting the debate on inequality and development

François Bourguignon ——————————————————————————————————————————————— 641
REP 125 (5) septembre-octobre 2015
Document téléchargé depuis - Biblio SHS - - - 26/04/2016 h. © Dalloz

The Murphy et al. [1989] paper is essentially static. One could possibly also think of a dynamic version where the limited size of the market for mass consumption goods would discourage investment in the domestic economy and redirect available savings by the economic elite toward foreign markets,
bypassing existing capital controls. Thus, in such an economy, there would be two dynamic equilibria: one with a very high degree of inequality in the distribution of income, leading to slow growth and no industrialization and the other with a more equal income distribution, leading to faster growth and industrialization. Again, these assume that the economy is large enough for economies of scale to trigger this process.
In this framework, the relevant concept used to analyze the relationship between inequality and growth concerns income in general, and its consequences for the structure of the aggregate demand by type of good. Yet, in the kind of developing economy described by this model, it must be stressed that a major source of inequality actually originates in the distribution of the rents generated by the export activity. Even though it is rarely recorded in available statistics, it is this distribution that may ultimately determine the growth path of the economy. Institutions and development
The recent theoretical literature emphasizes, and rightly so, the role that institutions, in abroad sense, play in development. Among them, political institutions and the way political power is distributed in the population are clearly of utmost importance. The way predatory political elites may confiscate the process of development and maintain power, and the bifurcation that would take place if society could democratize, even in a limited way, has been extensively studied by several authors, including Acemoglu and Robinson, in various publications.
This is not the place to summarize this voluminous recent literature. Yet, it is important to stress that their discussion about the role of the nature of political institutions in economic development has very much to do with a particular type of inequality, namely that of the distribution of political power or unequal access to public decision making.
The point is not so much the simple distinction between autocracy and democracy. From that point of view, the debate about the implications of these political regimes for economic development continues. Other institutional aspects within given political regimes are more important, even though they are more or less pronounced, depending on the regime. In particular, issues of cronyism and corruption can be seen as responsible for clear departures from mechanisms leading to efficient economies. Generic names given to the overall quality of institutions, such as the “extractive”/
“inclusive” distinction made by Acemoglu and Robinson [2012], precisely include several such institutional characteristics, implying that the same name may cover diverse realities. In this more general sense, the quality of. See, in particular, Acemoglu et al. [2005] and Acemoglu and Robinson [2013].
642 ——— Revisiting the Debate on Inequality and Economic Development
REP 125 (5) septembre-octobre 2015
Document téléchargé depuis - Biblio SHS - - - 26/04/2016 h. © Dalloz

institutions may refer to unequal opportunities open to citizens, for instance,
opportunities that depend on their economic resources, as when rich people are able to bribe corrupt judges, or on the proximity of people to the elite in power.
To be sure, the weakness of institutions ineffectively guaranteeing equal rights to citizens is most likely to generate economic inequalities that will reflect in the income distribution. People with more rights than the others will benefit, while distorting the working of the economy, making it less efficient. At the same time, the concentration of resources in the hands of these people will reinforce their control of the economy, trapping the whole society in a vicious circle of underdevelopment. Corruption and cronyism generates slow growth and income inequality, the latter giving the elite the resources to keep political power so that corruption and cronyism perpetuate. Under these conditions, it is difficult to say what is responsible for slow growth the weakness of institutions and the inequality of rights it entails, or the inequality of income it generates that allows weak institutions to keep going.
In summary, there is great diversity in the channels through which specific types of inequality may affect economic growth and development. Unfortunately, few of these inequality types lend themselves to easy statistical measurement. This explains why the empirical literature tends to focus almost exclusively on the only inequality concept readily available the inequality of income or consumption expenditure. However, given the variety of channels reviewed above, this is a bit like looking for one’s keys under a lamppost because it is the only place where there is light. The ambiguous empirical relationship between growth and inequality
Evidence in support of the various theoretical channels that may link inequality and growth maybe sought at two levels at the aggregate level,
considering the relationship between some measure of inequality and growth across countries and/or across periods at the micro level, gathering observations that confirm the basic hypothesis put forward by the theory.
The two approaches will be considered in turn. Aggregate evidence on inequality and growth
In the wave of the growth regressions that occurred in development economics in the sit was no surprise that the Gini coefficient of income

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