gund institute for ecological economics growth, equity and cumulative causation brendan fisher gund...

Gund Institute for Ecological Economics

Growth, Equity and Cumulative Causation

brendan fisher


University of Vermont


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


Solow’s Growth Model

Y = Af(K)

Time

Y/N

Poor NationsRich Nations

LR


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).


Recent Findings…


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)


Our work


Gini Coefficient

A

B

Income recipients

Income

100%

100%0

Gini = A/(A+B)


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


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


Growth Rate3%

40Gini

NorwayTaiwan

South Korea(1961)

Honduras, Iran, Philippines,

Venezuela, Zambia, Madagascar,

Tanzania, Senegal

MalaysiaThailand

Singapore (1973)

Tunisia

Niger

A Closer Look


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


Growth Rate3%

40Gini

Australia, United States, United

Kingdom

Long Run Dynamic


Long Run Dynamic

Growth Rate3%

40Gini

Finland, France, The Netherlands

Nepal*, Portugal*, Egypt, El Salvador

Sri Lanka, China, Bangladesh, India


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%


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%


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


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


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


Consistent?

• Low tax rate and high government spending show weak correlation to growth in cross-country analysis (Slemrod, 1995)


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


Growth

Equity

Conclusion I


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


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


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).


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.


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.


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.

gund institute for ecological economics growth, equity and cumulative causation brendan fisher gund...

Documents

ecological economics

growth equity slide

ecological economics

dynamic slide

work slide

view slide

gini change slide

growth process