The Microeconomics of Income Distribution Dynamics in East Asia and Latin America logo

Economists have had much to say about what causes aggregate economic growth, but they have been more reticent about the distributional dimension of that growth. Understanding development and the process of poverty reduction requires understanding not only how total income grows but also how its distribution behaves over time. This book is a major new contribution to that process. The authors propose a decomposition of differences in entire distributions of household incomes, shedding new light on the powerful, and often conflicting, forces that underpin the changes in poverty and inequality that accompany the process of economic development. This approach is applied to three East Asian countries--Indonesia, Malaysia, and China--and to four in Latin American--Argentina, Brazil, Colombia, and Mexico. This volume presents a fascinating collection of studies on the dynamics of income inequality based on micro data. Using a simple but powerful empirical methodology, the authors analyze the roles of prices, occupational choice, and educational choice in accounting for household income and its contribution to inequality. It casts doubt on the grand theories of growth and income inequality that have dominated discussions in development economics. It paves the way for a full-blown, micro-based general equilibrium theory of income determination and income inequality. —James Heckman, Professor of Economics, University of Chicago, and 2000 Nobel Laureate in Economics This is a ground-breaking study by an outstanding group of authors. In attempting to disentangle the forces that influence changes in income distribution over time and to assess their quantitative impact within a coherent decomposition framework, the volume sets a new standard for future research on the dynamics of income inequality. —Anthony Shorrocks, Director, World Institute for Development Economics Research, Helsinki

Publisher: World Bank

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