A Normal Relationship? Poverty, Growth, and Inequality

Using a large cross-country income distribution dataset spanning close to 800 country-year observations from industrial and developing countries, the authors show that the size distribution of per capita income is well approximated empirically by a lognormal density. The 0 hypothesis that per capita...

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Bibliographic Details
Main Authors:	Lopez, J. Humberto, Servén, Luis
Format:	Policy Research Working Paper
Language:	English
Published:	World Bank, Washington, DC 2012
Subjects:	ABSOLUTE VALUE AGGREGATE GROWTH AGGREGATE INCOME AVERAGE INCOME AVERAGE INCOME GROWTH AVERAGE INCOMES AVERAGE LEVEL CONSUMPTION SMOOTHING COUNTRY INDEX COVARIANCE MATRIX CROSS-COUNTRY DIFFERENCES CROSS-COUNTRY INCOME DECLINING INEQUALITY DENSITY FUNCTION DEPENDENT VARIABLE DESCRIPTIVE STATISTICS DEVELOPING COUNTRIES DEVELOPMENT POLICY DISTRIBUTIONAL CHANGE DISTRIBUTIONAL TERM ECONOMICS ECONOMICS LITERATURE EFFECTIVE GROWTH ELASTICITY OF POVERTY EMPIRICAL EVIDENCE EMPIRICAL LITERATURE EMPIRICAL MODEL EMPIRICAL RESULTS EMPIRICAL WORK EQUAL COUNTRIES EQUAL WEIGHT ERROR TERM FUNCTIONAL FORM GINI COEFFICIENT GROSS INCOME GROWTH GROWTH COMPONENT GROWTH EFFECT GROWTH ELASTICITY GROWTH RATE GROWTH SPELLS HEADCOUNT POVERTY HEADCOUNT RATIO HETEROSKEDASTICITY HIGH INEQUALITY HIGH INEQUALITY COUNTRIES HOUSEHOLD SURVEYS INCOME DATA INCOME DISTRIBUTION INCOME GROWTH INCOME INEQUALITY INCOME LEVELS INCOME REDISTRIBUTION INCOME SHARE INCOME SHARES INCOME SHORTFALL INCREASING INEQUALITY INDIVIDUAL INCOMES INEQUALITY AVERSION INEQUALITY CHANGES INEQUALITY EFFECT INEQUALITY ELASTICITY INTEREST RATE INTERVENTIONS LINEAR REGRESSIONS LOG INCOME LONG RUN LOW INCOME LOW INEQUALITY LOW INEQUALITY COUNTRIES LOW-INCOME COUNTRIES MEAN INCOME MEASUREMENT ERROR MIDDLE INCOME MINIMUM LEVEL NATIONAL ACCOUNTS NEGATIVE IMPACT NET INCOME NORMAL DISTRIBUTION 0 HYPOTHESIS OBSERVED CHANGE PER CAPITA CONSUMPTION PER CAPITA EXPENDITURE PER CAPITA GROWTH PER CAPITA GROWTH RATE PER CAPITA INCOME PER CAPITA INCOME LEVELS PERSONAL INCOME POINT ESTIMATES POLICY MAKERS POLICY OBJECTIVE POLICY RESEARCH POOR POOR COUNTRIES POVERTY POVERTY CHANGES POVERTY DECLINES POVERTY GAP POVERTY HEADCOUNT POVERTY LINE POVERTY LINES POVERTY MEASURE POVERTY MEASURES POVERTY RATE POVERTY REDUCTION PROPORTIONATE CHANGES RANDOM EFFECTS RANDOM EFFECTS MODEL RELATIVE CONTRIBUTION RELATIVE CONTRIBUTIONS RELATIVE IMPORTANCE RELATIVE INCOME RELATIVE INCOME DISTRIBUTION RELATIVE INCOMES RELATIVE POVERTY RELATIVE ROLE RESIDUAL TERM SIMULATIONS SQUARED POVERTY GAP STANDARD DEVIATION UNEQUAL COUNTRIES WEALTH
Online Access:	http://documents.worldbank.org/curated/en/2006/01/6525961/normal-relationship-poverty-growth-inequality http://hdl.handle.net/10986/8791

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Summary:	Using a large cross-country income distribution dataset spanning close to 800 country-year observations from industrial and developing countries, the authors show that the size distribution of per capita income is well approximated empirically by a lognormal density. The 0 hypothesis that per capita income follows a lognormal distribution cannot be rejected-although the same hypothesis is unambiguously rejected when applied to per capita consumption. The authors show that lognormality of per capita income has important implications for the relative roles of income growth and inequality changes in poverty reduction. When poverty reduction is the overriding policy objective, poorer and relatively equal countries may be willing to tolerate modest increases in income inequality in exchange for faster growth-more so than richer and highly unequal countries.

A Normal Relationship? Poverty, Growth, and Inequality

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