SMEs,Growth, and Poverty: Cross-Country Evidence

This paper explores the relationship between the relative size of the Small and Medium Enterprise (SME) sector, economic growth, and poverty alleviation using a new database on the share of SME labor in the total manufacturing labor force. Using a sample of 45 countries, we find a strong, positive association between the importance of SMEs and GDP per capita growth. The data do not, however, confidently support the conclusions that SMEs exert a causal impact on growth. Furthermore, we find no evidence that SMEs alleviate poverty or decrease income inequality.     

MEASURING NON‐ECONOMIC WELL‐BEING ACHIEVEMENT

Income per capita and most widely reported, non‐ or non‐exclusively income based human well‐being indicators are highly correlated among countries. Yet many countries exhibit higher achievement in the latter than predicted by the former. The reverse is true for many other countries. This paper commences by extracting the inter‐country variation in a composite of various widely‐reported, non‐income‐based well‐being indices not accounted for by variations in income pre capita. This extraction is interpreted inter alia as a measure of non‐economic well‐being. The paper then looks at correlations between this extraction and a number of new or less widely‐used well‐being measures, in an attempt to find the measure that best captures these achievements. A number of indicators are examined, including measures of poverty, inequality, health status, education status, gender bias, empowerment, governance and subjective well‐being.     

Migration and rural poverty in China

We analyze two complementary household datasets from China's poor areas to examine whether the poor migrate and whether migration helps the poor. We find an inverted-U-shaped relationship between household endowments and the likelihood of migration. Over time, the poor are more likely to migrate. Using household panel data and taking prior village migration networks as an instrument, we find that having a migrant increases a household's income per capita by 8.5 to 13.1 percent, but that the overall impact on poverty is modest because most poor people do not migrate. Migrants remit a large share of their income and the amount of these remittances is responsive somewhat to the needs of other family members. Journal of Comparative Economics 33 (4) (2005) 688–709.     

Aggregation bias-correcting approach to the health–income relationship: Life expectancy and GDP per capita in 148 countries, 1970–2010

A large amount of data consisting of 148 countries for the years 1970 to 2010 is analysed in the context of the health–income relationship. The literature suggests that the biased income–health effect obtained with macro data can be a result of the aggregation of individual concave income functions on average health. This aggregation problem is analysed in detail, and a bias-correcting method is proposed to overcome it. The results with new model alternatives show that they correct the income effects on average health in the right direction; that is, they produce smaller parameter estimates than biased models. Augmenting the results with the quantile regression approach, which is sensitive to health differences between countries, indicates that the poorest countries’ income gradient is still much larger than that of rich countries. However, the median life expectancy effect of the log of GDP per capita across the countries decreased during the sample decennials. The results for income inequality measured with the Gini coefficient indicate that the effects of inequality on health are still significant in the poorest countries but non-significant among rich countries after the year 2000. We argue that the proposed bias-correcting method retains the interest in macro health modelling and offers new model alternatives in other contexts.     

Inequality and Economic Growth: A Global View Based on Measures of Pay

This paper discusses two issues in the relationship betweeninequality and economic growth: the data and the econometrics.We first review the income inequality data set of Deiningerand Squire (D&S), which, we argue, fails to provide eitheradequate or accurate coverage, whether through time or acrosscountries. We then introduce our own measures of the inequalityof manufacturing pay, based on UNIDO's Industrial Statistics.These provide indicators of pay inequality that are more stable,more reliable and in our view also more comparable across countries,than the D&S data. Turning to the fabled "Kuznets" relationship between inequalityand economic development, we diagnose several common econometricproblems in the literature, including measurement error andomitted variable bias. By taking steps to account for theseproblems, and by introducing a more complete panel data setbased on pay inequalities, we seek more reliable inferencesconcerning the relationship between inequality, national incomeand economic growth. We find evidence that generally supportsKuznets' specification for industrializing countries: pay inequalitytends to decline as per capita income increases, though withsome tendency for the relationship to curve up for the richestcountries. After 1981 two findings emerge. First, per capitaGDP growth slowed dramatically in most countries, increasinginequality along the augmented Kuznets curve. Second, thereis a global and macroeconomic effect that produces rising inequalityin our data, independent of GDP or its changes. The timing ofthis effect suggests a link to the high real interest ratesand global debt crisis of the period beginning in 1982. (JELC23, D31, J31, O11)     

Infant mortality,relative income and public policy

Do health outcomes depend on relative income as well as on an individual's absolute level of income? We use infant mortality as a health status indicator and find a significant and positive link between infant mortality and income inequality using cross-national data for 93 countries. Holding constant the income of each of the three poorest quintiles of a country's population, we find that an increase in the income of the upper 20% of the income distribution is associated with higher, not the lower infant mortality. Our results are robust and not just caused by the concave relationship between income and health. The estimates imply a decrease in infant mortality by 1.5% for a one percentage point decrease in the income share of the richest quintile. The overall results are sensitive to public policy: public health care expenditure, educational outcomes, and access to basic sanitation and safe water can explain the inequality–health relationship. Thus, our findings support the hypothesis of public disinvestment in human capital in countries with high income inequality. However, we are not able to determine whether public policy is a confounder or mediator of the relationship between income distribution and health. Relative deprivation caused by the income distance between an individual and the individual's reference group is another possible explanation for a direct effect from income inequality to health.     

收入、收入不均与健康:城乡差异和职业地位的影响

本文使用来自中国9个省的微观面板数据,检验了居民自评健康与家庭人均收入和社区内收入不均之间的相关关系。考虑到中国城乡分割的二元经济社会特征,本文将农村样本和城镇样本分开处理;考虑到中国的社会分层结构,计量方程中引入了代表职业地位的变量及其与收入和收入不均的交互项。在实证结果的基础上,本文讨论了收入、收入不均与健康关系的作用机制。主要结论是:收入与健康的关系、收入不均与健康的关系都存在城乡差异和职业差异,这说明在收入、收入不均与健康的关系中,社会经济地位的影响十分重要。要解决健康不平等问题,关键在于加强对社会经济地位较低者,主要是农村居民和生活在城镇的农民的医疗保障,同时要设法改善农村的基础设施和社会资本,并逐步取消各种造成城乡分割的制度。     

On poverty traps,thresholds and take-offs

Recent studies on economic growth focus on persistent inequality across countries. In this paper we study mechanisms that may give rise to such persistent inequality. We consider countries that accumulate capital in order to increase the per capita income in the long run. We show that the long-run growth dynamics of those countries can generate a twin-peak distribution of per capita income. The twin-peak distribution is caused by (1) locally increasing returns to scale and (2) capital market constraints. These two forces give rise to a twin-peaked distribution of per capita income in the long run. In our model investment decisions are separated from consumption decisions and we thus do not have to consider preferences. Empirical evidence in support of a twin-peak distribution of per capita income is provided.     

Import prices,income, and inequality

We compare three theoretical explanations for the positive empirical relationship between importer income per capita and traded goods prices. A first explanation is that consumers with higher incomes demand higher quality goods with higher prices. A second explanation is that wealthier people exhibit an increased willingness to pay for necessary goods as more goods enter the consumption set in a hierarchic demand system, and can thus be charged higher markups. A third explanation is that consumers with higher incomes are more finicky regarding their preferred variety in an ideal variety framework and can thus be charged higher markups. We discriminate between these three theories by focusing on the effect of income inequality on trade prices. Based on a large dataset with bilateral HS6 level data on 1260 final goods categories from more than 100 countries between 2000 and 2004, we find a highly significant negative effect of income inequality on unit values. This contradicts both the demand for quality and finickyness theories, while providing support for the increased willingness to pay theory linked to hierarchic demand. These findings on income inequality do not falsify the quality expansion model and the ideal variety model per se. However, the results do argue for place of importance of hierarchic demand.     

Poverty, inequality, and growth in urban China, 1986–2000

Although urban China has experienced spectacular income growth over the last two decades, increases in inequality, reduction in social welfare provision, deregulation of grain prices, and increases in income uncertainty in the 1990s have increased urban poverty. Using a large repeated cross section household survey from 1986 to 2000, this study maps the changes in income, inequality, and poverty over the fifteen-year period and investigates the determinants of poverty. We find that the increase in poverty in the 1990s is associated with the increase in the relative food price and the need to purchase items that were previously provided free or at highly subsidized prices by the state, i.e., education, housing and medical care. In addition, the increased saving rate of poor households, which is due to an increase in income uncertainty, contributes significantly to the increase in poverty measured in terms of expenditure. Journal of Comparative Economics 33 (4) (2005) 710–729.     

ECONOMIC FREEDOM AND INCOME LEVELS ACROSS U.S. STATES: A SPATIAL PANEL DATA ANALYSIS

There is a large literature estimating the effect of economic freedom on economic growth or income levels. Most studies examine the relationship between economic freedom and growth or income levels for countries, while a few examine the relationship for U.S. states. Absent in the state‐level literature is consideration of the presence of spatial spillovers affecting the freedom‐income relationship. Neglecting to account for spatial autocorrelation can bias estimation results and therefore inferences drawn. We find evidence of a spatial pattern in real per‐capita gross state product (GSP) that affects nonspatial estimates of the freedom‐income relationship. Taking into account the direct and indirect effects of economic freedom on real per‐capita GSP, we find a 10% increase in economic freedom is associated with a 5% increase in real per‐capita GSP. (JEL E02, O47, R11)     

Sustainable Development in Affluent Countries and the Neo-Institutionalist Synthesis

Since development is a process rather than an end-state, all countries are always in a constant state of change, regardless of their level of income. This article focuses on the challenges that affluent countries face today in shifting to a sustainable development path. These challenges include improving the quality of life, achieving environmental sustainability, and addressing inequality. In the United States in particular, these challenges have increased in recent decades, despite significant economic growth. The neoclassical development model assumes that growth makes it easier to achieve sustainable development and that wellbeing rises with per capita income. We question these assumptions, and find a theory of economic development in institutional economics that better explains and accommodates sustainability. We draw on the work of many original institutionalist economists (OIE), and others working in this tradition, to analyze the challenges of sustainable development in affluent countries, especially in the United States.     

Inequality and economic growth: the role of initial income

We estimate a panel model where the relationship between inequality and GDP per capita growth depends on countries’ initial incomes. Estimates of the model show that the relationship between inequality and GDP per capita growth is significantly decreasing in countries’ initial incomes. Results from instrumental variables regressions show that in Low Income Countries transitional growth is boosted by greater income inequality. In High Income Countries inequality has a significant negative effect on transitional growth. For the median country in the world, that in the year 2015 had a PPP GDP per capita of around 10000USD, IV estimates predict that a 1 percentage point increase in the Gini coefficient decreases GDP per capita growth over a 5-year period by over 1 percentage point; the long-run effect on the level of GDP per capita is around ??5%.     

Income inequality and export prices across countries

This paper provides theory and evidence on the links between income inequality within a destination country and the patterns of trade and export prices. The theoretical framework relates income inequality to product quality and prices using a simple demand composition effect. The model predicts that a more unequal income distribution in a destination country leads to higher average prices, though the effect is nonlinear and disappears for rich enough countries. The predictions are tested using detailed firm‐level data. Controlling for income per capita, prices are systematically higher in more unequal destinations, and the strength of this effect depends on income per capita. Results are particularly important for middle‐income countries and hold only for differentiated goods, and in particular for products with a high degree of vertical differentiation.     

Entrepreneurship, Economic Risks, and Risk Insurance in the Welfare State: Results with OECD Data 1978–93

We find evidence in the OECD cross-country data to support the Knightian view that non-diversifiable economic risks shape equilibrium entrepreneurship in an occupational choice model. Differential social insurance of entrepreneurial and labor risk is found to be statistically significant and detrimental to entrepreneurship. The crowding-out effect of public production of private goods on entrepreneurship dominates the crowding-in effect of public production of public goods in the OECD data. Weak evidence is found for the proposition that the rate of entrepreneurship is related to the degree of income inequality and to the union power in the economy. The results also suggest that in countries with low GDP per capita ratio, self-employment is high.     

Inequality and income: The mediating effects of social spending and risk

This paper estimates models of social spending, income risk, and per capita income levels using data from a post-war panel of OECD (Organisation for Economic Cooperation and Development) countries. The objective is to test two theories about the pathway from inequality to per capita income. According to one theory, inequality reduces incomes because it induces social spending, which acts as a drag on the economy. The results here suggest, however, that inequality does not seem to induce social spending, and social spending does not seem to lower per capita incomes. According to a second theory, inequality causes upheaval which adds to the volatility of per capita income, which may reduce the level of per capita income. The results suggest, however, that volatility, measured here as the standard deviation of per capita income, has little measurable impact on either per capita income or social spending. The mainsprings of per capita income are more likely to be the traditional factors: the work force, human capital, and physical capital.
JEL classification: E6.     

Does More Consumption Promote Real GDP Growth?

This paper employs Hansen's (1999) panel threshold regression model [Journal of Econometrics 39 (1999) 345–68] based on a time series dataset of 109 countries from 1960 to 2007 to investigate the threshold relationship between the change in real GDP per capita and the consumption size (consumption‐income ratio, APC). The results show that the consumption level should not exceed the 49.68% threshold of real GDP per capita for each country regardless of the income level. Also, the relationship between the change in real GDP per capita and the consumption size seems to have ‘Armey curve’ or ‘inverted‐U shape’ characteristic. In order to promote real GDP growth, our results suggest that the high‐income, low‐APC countries should encourage more consumption while the low‐income, high‐APC countries should encourage more saving.     

Gender Inequality and Economic Growth in Korea

Calibrating an endogenous‐growth model to Korean data, we analyse the impact of gender inequality in Korea on long‐term economic growth. We find that gender equality policies that lower discrimination in the labour market or that increase the time spent by a father on childrearing can contribute positively to female labour market participation and per capita income growth. The simulation results show that when the disparities between men and women at home and in the labour market are completely removed, the female labour force participation rate increases from 54.4 to 67.5%, and the growth rate in per capita income rises from 3.6 to 4.1% on average over a generation.     

The relationship between income inequality and aggregate saving: an empirical analysis using cross-country panel data

If the rich save more than the poor, an increase in income inequality raises aggregate saving. We investigate whether income inequality is positively related to aggregate saving ratio by estimating a fixed-effect model based on a panel data of 48 countries for the period 1991–2010. We find evidence that aggregate saving ratio increases with income inequality using various inequality measures. In particular, the effect of income distribution on saving is greater and statistically more significant with in financially developed, rich and OECD countries. It suggests that the rich save much more than the poor under advanced financial system and in a rich country. We also find that the relationship between income inequality and saving ratio is closer in the 2000s than the 1990s. This finding may result from financial development and the high income level in the 2000s.     

Financial Openness,Aggregate Consumption and Threshold Effects

We analyse the influence of financial openness on the level of aggregate consumption, a research question that has been left surprisingly unexplored by the previous literature. We construct a complete and balanced panel data set of 88 countries for the period 1980–2010, and then differentiate between four groups of countries. Models for non‐stationary heterogeneous panels, as well as panel threshold regression models, are used to estimate the determinants of aggregate consumption. The core finding of the paper is that the financial openness effect on consumption changes in the course of economic development, with the level or per capita income acting as a threshold which is consistently estimated within the model. The openness effect is non‐homogeneous across groups, stronger for low levels of per capita income and diminishes as income rises. These findings provide new insights into the welfare effect of financial liberalization.