Asset Distribution, Inequality, and Growth

With the recent resurgence of interest
in equity, inequality, and growth, the possibility of a
negative relationship between inequality and economic
growth, has received renewed interest in the literature.
Faced with the prospect that high levels of inequality may
persist, and give rise to poverty traps, policymakers are
paying more attention to the distributional implications of
macroeconomic policies. Because high levels of inequality
may hurt overall growth, policymakers are exploring measures
to promote growth and equity at the same time. How the
consequences of inequality are analyzed, along with the
possible cures, depends partly on how inequality is
measured. The authors use assets (land) rather than income -
and a GMM estimator - to examine the robustness of the
relationship between inequality and growth that has been
observed in the cross-sectional literature, but has been
drawn into question by recent studies using panel
techniques. They find evidence that asset inequality - but
not income inequality - has a relatively large negative
impact on growth. They also find that a highly unequal
distribution of assets reduces the effectiveness of
educational interventions. This means that policymakers
should be more concerned about households' access to
assets, and to the opportunities associated with them, than
about the distribution of income. Long-term growth might be
improved by measures to prevent large jumps in asset
inequality - possibly irreversible asset loss because of
exogenous shocks - and by policies to facilitate asset
accumulation by the poor.