Trade Liberalization and Wage Inequality: Evidence from India

We evaluate empirically the impact of the dramatic 1991 trade liberalization in India on the industry wage structure. The empirical strategy uses variation in industry wage premiums and trade policy across industries and over time. In contrast to most earlier studies on developing countries, we find a strong, negative, and robust relationship between changes in trade policy and changes in industry wage premiums over time. The results are consistent with liberalization‐induced productivity increases at the firm level, which get passed on to industry wages. We also find that trade liberalization has led to decreased wage inequality between skilled and unskilled workers in India. This is consistent with the magnitude of tariff reductions being relatively larger in sectors with a higher proportion of unskilled workers.     

Globalisation and Gender Inequality: Evidence from Labour Market in India

This paper examines quantitative and qualitative dimensions of employment issues in India from gender lens. Inequality in quantitative aspects have been analysed gender gap in work participation, composition and structure of employment. The study finds that female work participation in India has declined sharply despite faster economic growth and improvement in female literacy outcomes. The magnitude of decline is sharper in case of illiterate, women from less privileged class and rural backgrounds. Similarly, even after two decades of economic reform, female workers are highly concentrated in low productive, less remunerative and unpaid family labour category of self employment activities. Considering the qualitative dimension of jobs, the paper finds that the condition of female workers are more vulnerable as they are highly concentrated in informal sector and informal jobs with no employment security, no social security, and are being paid relatively lower wages compared to male workers in most of the sub-sector. The paper argues for an urgent policy intervention to ensure access to decent jobs and to provide protection to these vulnerably placed women workers.

     

Trade and Inequality with Limited Labor Mobility: Theory and Evidence from China

Does globalization increase inequality in developing countries, and if so, how? In a theoretical model of a regionally heterogeneous economy, we show how different regional rates of technical progress due to trade and FDI interact with constraints to unskilled labor mobility. As favored regions benefit more from trade, their growing demand for skills drains skilled workers from disadvantaged areas, and average incomes in the former grow faster than in the latter. Moreover, this unbalanced regional growth may also raise inequality within each region. It could even reduce absolute income per capita in the less favored region. We test these predictions with Chinese data from the Open Door era. Results confirm that different regional growth rates have increased both interregional and intraregional inequality. Moreover, growth of skills‐based export industries in coastal regions is associated, other things equal, with lower incomes for the poor in inland provinces.     

Natural Resource Booms and Inequality: Theory and Evidence*

We develop a theory, in the context of a two‐sector growth model in which learning‐by‐doing drives growth, to explain the time path of income inequality following natural resource booms in resource‐rich countries. Under the condition of a relatively unskilled labor intensive non‐traded sector, inequality falls immediately after a boom, and then increases steadily over time until the initial impact of the boom disappears. Using data for 90 countries between 1965 and 1999, we find evidence in support of the theory, especially for oil and mineral booms. We also find that uncertainty about future commodity prices increases long‐run inequality.     

The Effect of Inequality on Growth: Theory and Evidence from the Indian States

The paper examines the effect of inequality on growth among the subnational states in India. Theoretically, growth of the regional economy is driven by productive public investment in the provision of health and education services financed by a linear output tax, and the optimum tax rate is determined by the median voter. In contrast to existing results, the authors obtain an ambiguous relationship between initial inequality and subsequent economic growth. Analysis of the Indian state‐level data suggests that rural inequality influences growth of total output more than urban inequality, and does so negatively. The indicator of intersectoral inequality is more important in explaining sectoral output growth.     

Consumption Inequality in China: Theory and Evidence from the China Health and Nutrition Survey

We investigate consumption inequality in China both theoretically by constructing a theoretical model that delineates the transmission channels by which income shocks affect consumption and empirically through an Unequally Spaced Dynamic Panel Data model estimation. We find that China is experiencing consumption inequality with the full partial insurance of consumption against both permanent and transitory income shocks, although the impact of both types of shock are larger than the case of the United States. The results are due to precautionary savings motives of the Chinese. We further document how income becomes more dispersed in China and show how the family background of a child affects his outcome to a large extent. Policy implications based on our findings are proposed.     

Income Inequality is not Harmful for Growth: Theory and Evidence

The paper shows that income inequality may theoretically lead to higher economic growth if public consumption enters the utility function. Empirically, baseline estimations and a sensitivity analysis show that income inequality is positively, and most of the time significantly, associated with economic growth. These findings stand in sharp contrast to the negative association between inequality and growth propounded by Alesina and Rodrik and by Persson and Tabellini.     

Inequality within generation: Evidence from France

Intra-generational inequalities focus on the distributions within age groups. On the basis of French household income surveys carried out from 1996 to 2014, the Gini coefficient and D9/D1 inter-decile ratio were calculated so as to evaluate intra-generational income inequality before and after redistribution by the tax and welfare system. Age-Cohort-Period models were then estimated in order to disentangle age and generation effects. Over a life cycle, intra-generational inequality displays a hump-shaped curve peaking at age 55–59. This inequality is significantly lower among the youngest, whichever inequality indicator is used, and among the oldest, when measured by the inter-decile ratio. Comparison of pre- and post-redistribution income reveals that the tax and welfare system particularly reduces inequality among the young. Intra-generational inequality measured by the Gini coefficient increases significantly from one generation to the next. Measured by the inter-decile ratio, the increase is considerable for the gross income of those generations born from the 1970s on. However, the tax and welfare system has compensated for this increase, because analysis of the inter-decile ratio applied to disposable income shows no significant difference between generations.     

Inequality and Saving: Further Evidence from Integrated Economies

Renewed attention to inequality and saving has arisen owing to their pronounced implications for global imbalances and financial crises. We show that the relationship between saving and inequality is negative if savers' funds are borrowed by spending households for consumption as in the USA, but positive if saving is allocated through financial systems to investing firms for production as in China. This theoretical result is largely consistent with empirical evidence found from these two increasingly integrated economies and other related countries by estimating panel‐data models. The policy implication is that inequality must be reduced in order to increase saving in the USA and other Organisation for Economic Co‐operation and Development (OECD) countries and to boost consumption in China and other parts of emerging Asia.     

Trade and Rural-Urban Income Inequality: Evidence from China

Using the provincial panel data from 1978 to 2007, this paper makes an empirical analysis of the relationship between international trade and rural-urban income inequality in China. The results show that international trade has a fundamental impact on rural-urban income inequality. For the whole country, the development of international trade from 1978 to 2007 enlarged the rural-urban income gap. During the three different periods (defined in section 3.3), the impact was also noticeable in terms of extent, direction and significance respectively at the national and regional levels. During the three periods, the relationship has an inverted “U” shape for China as a whole, central China and western China, but for eastern China the relationship has a “U” shape. At the same time, exports and imports have different influences on the rural-urban income gap in China, the influences were also different across regions; and the imports has had a more significant influence on these regions than exports has had.     

Changing Contours of Income Stratification and Decomposition of Income Inequality: Evidence from Recent Longitudinal Survey in India

The paper, based on India Human Development Survey (IHDS) data, tries to address the question- how unequal is India in terms of income distribution? Accordingly, the paper examines the trends, levels, sources and factors of income inequality in India between 2005 and 2012. Three important results stemmed from our analysis. First, in this paper we use Gini as a measure of inequality and find that income inequality in rural India has increased from 0.50 to 0.54 between 2005 and 2012, whereas, in urban India income inequality has increased from 0.48 to 0.49 during the same period. Next and most importantly, we decompose income inequality by income sources and find that amongst different sources of income inequality; the contribution of farm income in total inequality has decreased from 35 percent in 2005 to 21 percent in 2012 in rural India. On the other hand, the contribution of salaried income in total inequality has plummeted drastically from 65 percent in 2005 to 16 percent in 2012 in urban India. Finally, we use Theil’s T index from the class of Generalized Entropy (GE) inequality measures, while decomposing income by four most important factors; namely, place of residence, social, educational and occupational groups. It is irrespective of these factors; the relative share of within-group inequality is not only much higher than that of between-group inequality, also its share has increased between these two periods. Thus, our paper suggests that these mutually reinforcing inequalities, in the long run, if not addressed effectively, will create a hard-hitting division between the privileged and the rest in Indian society.

     

Private Tutoring: Evidence from India

Drawing on the nationally representative “Participation and Expenditure in Education” surveys, we document the incidence and cost of private tutoring at different stages of schooling over the last two decades in India. As private tutoring involves two decisions: (1) whether to take private tuition or not, and (2) how much to spend on private tutoring conditional on positive decision in (1), we analyze the determinants of the two decisions separately using a Hurdle model. We find that private tutoring is not a new phenomenon in India: a significant proportion of students at each stage of schooling took private tutoring even in 1986/87, and there has been no dramatic increase in those proportions. Students from urban areas, private schools, and from better economic backgrounds are more likely to take private tutoring. Furthermore, the demand for private tutoring is inelastic at each stage of schooling, which implies that private tutoring is a necessary good in the household consumption basket. We also find evidence of pro‐male bias in both decisions regarding private tutoring.     

FDI Location and the Relevance of Spatial Linkages: Evidence from Provincial and Industry FDI in China

In this study both aggregate and industry‐level foreign direct investment (FDI) data are employed to investigate the spatial dependence of FDI hosts. The analysis contributes to the existing literature by focusing on the heterogeneous spatial correlation of FDI in different industries. Using more comprehensive FDI data across multiple industries and multiple provinces in China from 1999 to 2007, the results show a significant spatial correlation among provinces. Aggregate FDI tends to be regional trade platform oriented indicating neighboring provinces become competitors for FDI. In contrast, results based on industry‐level provincial FDI show stronger support for vertical or complex vertical FDI.     

Income Inequality and Economic Growth: Evidence from American Data

While most cross-country studies find a negative relationship between income inequality and economic growth, studies that use panel data suggest the presence of a positive relationship between inequality and growth. This paper uses a cross-state panel for the United States to assess the relationship between inequality and growth. Using both standard fixed effects and GMM estimations, this paper does not find evidence of a positive relationship between inequality and growth but finds some evidence in support of a negative relationship between inequality and growth. The paper, however, shows that the relationship between inequality and growth is not robust and that small differences in the method used to measure inequality can result in large differences in the estimated relationship between inequality and growth.     

Inequality of opportunity and mass incidents: Evidence from China

This paper is one of the first to quantitatively analyse the relationship between inequality of opportunity and social stability in the context of China. Utilizing Census data of 2005 and the data of recorded mass incidents, we find a positive and robust correlation between inequality of opportunity and the outbreak of mass incidents. Amongst different types of mass incidents, inequality of opportunity displays the most significant correlation with those involving the government and the public. We also identify the lack of trust and higher unemployment as two potential channels through which inequality of opportunity exerts impacts on the happening of mass incidents.     

International trade and unionization: Evidence from India

We exploit exogenous variation in tariffs to examine the impact of import competition on unionization and union wages in a developing country. Using a combination of nationally representative household data (National Sample Survey Organization) and nationally representative industry‐level data (Annual Survey of Industries) from India, we find that net‐import industries that experienced larger cuts in tariffs also experienced larger declines in unionization. In addition, we find that these industries also experienced larger increases in union wages. These results are consistent with the predictions of an efficient bargaining framework that we extend to endogenize the union formation decision by allowing for a fixed cost of union formation. We also conduct a back‐of‐the‐envelope calculation to show that the total wage gains to unionized workers marginally exceed the total wage losses to deunionized workers.     

Inequality in National Inter-Generational Transfers: Evidence from Colombia

Public transfers are designed with the idea of reducing poverty and inequality among specific population groups. The National Transfers Account methodology suggests the use of household head education (HHE) as a poverty proxy in the construction of profiles by socio-economic status. Considering the higher levels of inequality in developing countries, we construct and check inequality and intergenerational transfers using an alternative measure based on variables not endogenous to the underlying idea of intergenerational transfers: a Multidimensional Quality of Life Index (MQLI). We apply the methodology to a developing country, Colombia, and show that inequality and disparities in intergenerational transfers are best understood when using the MQLI.     

Your Place in Space: Classroom Experiment on Spatial Location Theory

The authors detail an urban economics experiment that is easily run in the classroom. The experiment has a flexible design that allows the instructor to explore how congestion, zoning, public transportation, and taxation levels determine the bid–rent function. Heterogeneous agents in the experiment compete for land use using a simple auction mechanism. Using the data that is collected, a bid–rent function is derived, and the experimental treatment is altered over the course of three sessions to uncover core concepts in urban economics. Moreover, this provides a tangible experience that can be used to help undergraduates relate to urban issues such as the steep rent gradient found around many larger colleges and universities.     

Inequality and development: Evidence from semiparametric estimation with panel data

Evidences from nonparametric and semiparametric unbalanced panel data models with fixed effects show that Kuznet’s inverted-U relationship is confirmed when economic development reaches a threshold. The model tests justify semiparametric specification. The integrated net contribution of control variables to inequality reduction is significant.     

Income Inequality and Technology Diffusion: Evidence from Developing Countries*

We study the effect of within‐country income inequality on the diffusion of mobile phones using data on market penetration in a sample of developing countries from 1985 to 1998. Mobile phones are an example of international technology, originating in industrialized countries and diffusing worldwide. We find that income inequality, as measured by the income share of the highest earning deciles, has a positive effect on the early diffusion of mobile phones and that the estimated effect becomes greater when a measure of agricultural endowments is used as an instrument. The instrumental variable results are robust to weak instruments. Our findings suggest that the diffusion of new technologies originating from industrialized countries may generate yet another channel that links inequality and development.