Session 11
Gary Fields, Distribution and Development, 2001, Chs. 3 and 5
Distribution and development: A New Look at the Developing World
Summary of the summary: In Chapter 3, Fields makes the point that economic growth does not
guarantee more equitable distribution of income. In Chapter 5, he shows that economic growth will
almost always reduce poverty, whether that growth has made income distribution more equitable or not.
Chapter 3 is a technical critique of the Kuznets Curve, a law of development economics that says income
inequality tends to increase in early stages of economic development and decrease in later stages.
The Kuznets curve takes on an inverted U shape1 with income inequality on the y-axis and GDP growth
on the x-axis.
Fields asserts that the Kuznets Curve was based on misinterpretation of poorly constructed data sets.
His complaints are:
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The Kuznets data groups countries at one point in time instead of following the development of a
number of countries individually over a period of time.
The use of the econometric method known as ordinary least squares (OLS) on the Kuznets data
contributes to the inaccurate inverted-U shape of the Kuznets Curve
By using an econometric method known as ‘fixed effects estimation’ instead, the inverted-U
pattern disappears.
Ultimately, Fields asserts, a country-by-country review of the data indicates that the dominant pattern is
for inequality to fall as national income rises, as opposed to the rise of inequality and eventual fall
characterized by Kuznets’ model.
So what factors do determine whether inequality increases or decreases?
These findings are results of country-by-country analyses:
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Nature of the economic system itself. Socialist countries tend to have a more equitable
distribution of income than non-socialist countries
Structure of outputs in the economy. The more important agriculture is to an economy, the lower
the income inequality. This supports Kuznets’ observation that income inequality in nonfarm
(industrialized sectors) tends to be worse.
Share of primary/mineral exports in total output. These resources tend to be owned unequally
and tend not to generate a great deal of employment, so the more important these products are
to an economy, the less equitable the distribution of income.
Regional patterns. Latin America and Africa have less equal distributions of income than East
Asia, meaning that if you hold national income constant the distribution of income in a Latin
American or African country will be worse than it would be in an East Asian country.
Economic dualism in the labor market. Some countries set the wages of industrial workers higher
than the market and leave the market to determine low wages for agricultural workers. Research
comparing non-farm labor productivity to farm labor productivity indicates that this duality
increases income equality.
Access to land, capital, and credit in countries that have many self employed people. Your
access to these things will determine your ability to earn and in places where these resources are
distributed unequally, income distribution will be unequal.
Education. Higher rates of schooling and literacy are associated with lower income inequality.
Social income. The more a country spends on the health, housing and nourishment of its
citizens, the more equal the income distribution.
Just for some context, I have to point out that as I write this, the Old GC Bell Tower bells are playing “Here Comes
the Sun” by the Beatles. Shoot me.
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Chapter 5: Does Economic Growth Reduce Absolute Poverty?
Most economists accept without question that growth reduces absolute poverty, ie “the rising tide lifts all
boats.”
Nobel Prize winner Arthur Lewis claimed that economic growth might actually make the poor poorer for a
number of reasons:
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New development ‘enclave’ within country may be predatory on traditional sectors
Products from these enclaves may compete with and destroy traditional trades
Wage level in new enclave may be so high that it destroys employment in other sectors
Development of new enclave may result in geographical polarization
Development of new enclave may result in improved public health services but longer life
expectancy without additional income
New enclave may encourage excessive, unsustainable migration from countryside
“Immiserizing growth theorists” have proven that it is possible that growth might make some people
poorer, but whether it does make people poorer is an empirical question. Initial research by Adelman and
Morris indicated that economic development did indeed make the very poor worse off, but their results did
not survive the field’s scrutiny.
In sum, 20 years of data show convincingly that in a cross section of countries, those with higher per
capita incomes have less poverty.
Yet the finding that growth almost always reduces poverty is often misinterpreted—some people and
sectors will always be left out of the benefits of growth.
So what are the factors in the effect of economic growth of poverty alleviation?
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Speed of growth—in number of studies, faster economic growth led to greater poverty reduction.
Income inequality—countries whose income inequality grows with economic growth will be less
likely to reduce poverty.
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