Growth, Equity and Cumulative Causation

1. Growth, Equity and Cumulative Causation brendan fisher Gund Institute for Ecological Economics University of Vermont

2. Kuznets Curve • “Does inequality in the distribution of income increase or decrease in the course of a country’s economic growth?” (Kuznets, 1955) Inequality Economic Development

3. Solow’s Growth Model Y = Af(K) LR Y/N Poor Nations Rich Nations Time

4. 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).

5. Recent Findings…

6. Growth - Equity Studies

7. Our work

8. Gini Coefficient 100% Income A Gini = A/(A+B) B 0 Income recipients 100%

9. 40 Gini Early Growth and Equity

10. Recent Growth and Equity

11. A Closer Look

12. Long Run Dynamic

13. Long Run Dynamic

14. Long Run Dynamic

15. Another View

16. Growth and Gini Change

17. Growth and Gini Change 3% >-.2/yr>

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

21. Intervention Growth Equity 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.’

22. Growth Equity Conclusion I

23. 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

24. Market Growth Inequity Conclusions III • Growth can be a force to increase inequity (UK, Australia, USA) “the growth process is unlikely to leave inequality unchanged”(Aghion, 1999)

25. 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).

26. Source: Economic Apartheid in America, Collins, Yeskel, p. 42, 44.

27. 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.

28. 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.