Gund Institute for Ecological Economics Growth, Equity and Cumulative Causation brendan fisher Gund Institute for Ecological Economics University of Vermont.
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Gund Institute for Ecological Economics
Growth, Equity and Cumulative Causation
brendan fisher
Gund Institute for Ecological Economics
University of Vermont
Gund Institute for Ecological Economics
Kuznets Curve
• “Does inequality in the distribution of income increase or decrease in the course of a country’s economic growth?” (Kuznets, 1955)
Economic Development
Inequality
Gund Institute for Ecological Economics
Solow’s Growth Model
Y = Af(K)
Time
Y/N
Poor NationsRich Nations
LR
Gund Institute for Ecological Economics
Textbook Theory
• “The conventional textbook approach is that inequality is good for incentives and therefore good for growth, even though incentive and growth considerations might be traded off against equity or insurance goals” (Aghion et al. 1999).
Gund Institute for Ecological Economics
Recent Findings…
Gund Institute for Ecological Economics
Growth - Equity Studies
Perotti (1992)
Credit Markets
Alesina and Rodrik (1994) Tax rate/redist.
Denninger and Squire (1996)
Perotti (1996)
Marginal tax
Partridge (1997)
US States
Barro (1999)
Rich/Poor effect
Glaeser et al (2003)
f (legal capacity)
Gund Institute for Ecological Economics
Our work
Gund Institute for Ecological Economics
Gini Coefficient
A
B
Income recipients
Income
100%
100%0
Gini = A/(A+B)
Gund Institute for Ecological Economics
Early Growth
and Equity
Level Number Mean Std Error Lower 95% Upper 95%e 22 0.051 0.00653 0.03785 0.06397u 38 0.0299 0.00496 0.02 0.03987
F Ratio Prob > F t-Test DF Prob > |t|6.545 0.0132 2.558 58 0.0132
Gini40
Gund Institute for Ecological Economics
Level Number Mean Std Error Lower 95% Upper 95%e 29 0.0303 0.00411 0.02206 0.0385u 31 0.0163 0.00397 0.00832 0.0242
F Ratio Prob > F t-Test DF Prob > |t|6.023 0.0171 2.454 58 0.0171
Recent Growth
and Equity
Gund Institute for Ecological Economics
Growth Rate3%
40Gini
NorwayTaiwan
South Korea(1961)
Honduras, Iran, Philippines,
Venezuela, Zambia, Madagascar,
Tanzania, Senegal
MalaysiaThailand
Singapore (1973)
Tunisia
Niger
A Closer Look
Gund Institute for Ecological Economics
Growth Rate3%
40Gini
Japan, Sweden, Denmark*, Italy
Pakistan*, Germany Indonesia*, Spain, Greece, Canada
Bolivia, Mexico Turkey, Hong Kong Brazil, Costa Rica, Columbia, Jamaica
Long Run Dynamic
Gund Institute for Ecological Economics
Growth Rate3%
40Gini
Australia, United States, United
Kingdom
Long Run Dynamic
Gund Institute for Ecological Economics
Long Run Dynamic
Growth Rate3%
40Gini
Finland, France, The Netherlands
Nepal*, Portugal*, Egypt, El Salvador
Sri Lanka, China, Bangladesh, India
Gund Institute for Ecological Economics
Another ViewBrazil Puerto Rico
China Italy Canada SingaporeDenmark Japan Greece South KoreaEgypt Netherlands Hong Kong SpainFinland Norway India TaiwanFrance Pakistan Indonesia ThailandGermany Sri Lanka Ireland Trinidad and Tobago
Malaysia TunisiaMexico USA
Bangladesh New Zealand Australia Niger (-)Bolivia Peru Chile NigeriaJamaica Sweden Colombia PanamaMadagascar (-) Tanzania Costa Rica PhilippinesNepal Turkey Dominican Republic Portugal
Ecuador Sierra Leone (-)El Salvador United kingdomHonduras Venezuela (-)Iran Zambia (-)
Gini> - .2/yr < - .2/yr
Growth Rate 3%
Gund Institute for Ecological Economics
Growth and Gini Change
UK
AustraliaFranceFinland
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
-0.0250 -0.0200 -0.0150 -0.0100 -0.0050 0.0000 0.0050 0.0100 0.0150 0.0200
%Gini Chg/Yr
GD
P G
row
th/y
r
USA
Netherlands
3%
Gund Institute for Ecological Economics
China, Denmark, Italy, Japan, Finland, France,
Germany, Norway, Netherlands, Sri Lanka
Canada, USA, India, Spain
New Zealand, SwedenAustralia, Portugal,
United Kingdom
3%
>-.2/yr>
Growth and Gini Change
Gund Institute for Ecological Economics
Government Spending
0
5
10
15
20
25
30
1950 1960 1970 1980 1990 2000
cG (
$PP
P)
Australia
UK
USA
Canada
Spain
Denmark
Finland
France
Netherlands
Norway
Sweden
Gund Institute for Ecological Economics
Openness
0
20
40
60
80
100
120
140
1950 1960 1970 1980 1990 2000
(NX
/cG
DP
)/G
DP
Australia
UK
USA
Canada
Spain
Denmark
Finland
France
Netherlands
Norway
Sweden
Gund Institute for Ecological Economics
Consistent?
• Low tax rate and high government spending show weak correlation to growth in cross-country analysis (Slemrod, 1995)
Gund Institute for Ecological Economics
Conclusion I
• T-tests supports other studies: positive relationship between equity and growth.
• Confidently reject the mindset that ‘equity is sought at the cost of growth.’
Growth Equity
Intervention
Gund Institute for Ecological Economics
Growth
Equity
Conclusion I
Gund Institute for Ecological Economics
Conclusions II• Increasing equity can
be achieved even in economic downturn. (Global Slowdown since 1973, national downturns)– Middle East and North
Africa low growth, lowered poverty levels over past 20yrs
(Adams and Page, 2003).
Growth
Equity
Gund Institute for Ecological Economics
Conclusions III• Growth can be a
force to increase inequity (UK, Australia, USA)“the growth process is unlikely to leave inequality unchanged” (Aghion, 1999)
Growth Inequity
Market
Gund Institute for Ecological Economics
Cumulative Causation
• “If things were left to market forces unhampered by any policy interferences, industrial production, commerce, banking, insurance, shipping and indeed almost all of those economic activities which in a developing economy tend to give a bigger than average return – and, in addition, science, art, literature, education, and higher culture generally – would cluster in certain localities and regions, leaving the rest of the country more or less in a backwater” (Mrydal, 1957).
Gund Institute for Ecological Economics
1979-1998 Real Family Income Growth by Quintile and for Top 1%
-5%
3%8%
15%
38%
106%
-20%
0%
20%
40%
60%
80%
100%
120%
Bottom 20% Second 20% Middle 20% Fourth 20% Top 20% Top 1%
Source: Economic Apartheid in America, Collins, Yeskel, p. 42, 44.
Gund Institute for Ecological Economics
Conclusions IV
• Policy and Implementation matter, often more than economic status.– Egypt, Sri Lanka, China seeking growth and
equity.– USA, UK, Australia poor performance in
combating inequity.
Gund Institute for Ecological Economics
Policy Considerations and Implications
• Cross-country data can be helpful, but historical analysis, key component to not fall into IMF blanket policy trap.
• Enlightened by the process Cumulative Causation.• Growth and equity as a dynamic relationship.• Ecological consequences of growth and inequity.
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