François Bourguignon

The Measurement of Multidimensional Poverty

Many authors have insisted on the necessity of defining poverty as a multidimensional concept rather than relying on income or consumption expenditures per capita. Yet, not much has actually been done to include the various dimensions of deprivation into the practical definition and measurement of poverty. Existing attempts along that direction consist of aggregating various attributes into a single index through some arbitrary function and defining a poverty line and associated poverty measures on the basis of that index. This is merely redefining more generally the concept of poverty, which then essentially remains a one dimensional concept. The present paper suggests that an alternative way to take into account the multi-dimensionality of poverty is to specify a poverty line for each dimension of poverty and to consider that a person is poor if he/she falls below at least one of these various lines. The paper then explores how to combine these various poverty lines and associated one-dimensional gaps into multidimensional poverty measures. An application of these measures to the rural population in Brazil is also given with poverty defined on income and education.

Inequality Among World Citizens: 1820-1992

This paper investigates the distribution of well being among world citizens during the last two centuries. The estimates show that inequality of world distribution of income worsened from the beginning of the 19th century to World War II and after that seems to have stabilized or to have grown much more slowly. In the early 19th century most inequality was due to differences within countries; later, it was due to differences between countries. Inequality in longevity, also increased during the 19th century, but then was reversed in the second half the 20th century, perhaps mitigating the failure of income inequality to improve in the last decades.

Oligarchy, democracy, inequality and growth

This paper analyzes the dynamics of inequality, democratization and economic development in a political economy model of growth where education is both the engine of growth and a determinant of political participation. In a context with imperfect capital markets, we investigate the incentives for an educated oligarchy to subsidize the poors education and to initiate a democratic transition. We characterize the equilibrium patterns of political institutions, income distribution and growth as a function of the initial income and inequalities. In particular, we identify circumstances under which the Elite promotes the endogenous emergence of a middle class for purely political economy reasons. A simple linear infinite horizon framework is then presented. In this setting, we discuss the importance of historical dependence for long-run social stratification and redistribution.

The Comparison of Multi-Dimensioned Distributions of Economic Status

The literature on inequality measurement has been largely concerned with single-dimensioned indicators. This paper explores some of the issues which arise when there are several dimensions to inequality, and these are not readily reduced to a single index, concentrating particularly on the two-dimensioned case. We make use of results on multi-variate stochastic dominance in portfolio theory, extending these and applying them to the measurement of inequality. The use of the dominance conditions is illustrated by an application to the international distribution of income and life expectancy.

Selection Bias Corrections Based on the Multinomial Logit Model: Monte-Carlo Comparisons

This survey presents the set of methods available in the literature on selection bias correction, when selection is specified as a multinomial logit model. It contrasts the underlying assumptions made by the different methods and shows results from a set of Monte Carlo experiments. We find that, in many cases, the approach initiated by Dubin and MacFadden (1984) as well as the semi-parametric alternative recently proposed by Dahl (2002) are to be preferred to the most commonly used Lee (1983) method. We also find that a restriction imposed in the original Dubin and MacFadden paper can be waived to achieve more robust estimators. Monte Carlo experiments also show that selection bias correction based on the multinomial logit model can provide fairly good correction for the outcome equation, even when the IIA hypothesis is violated.

Inequality of Opportunity in Brazil

This paper proposes a method to decompose earnings inequality into a component due to unequal opportunities and a residual term. Drawing on the distinction between ‘circumstance’ and ‘effort’ variables in John Roemer’s work on equality of opportunity, we associate inequality of opportunities with the inequality attributable to circumstances which lie beyond the control of the individual – such as her family background, her race and the region where she was born. We interpret the decomposition as establishing a lower bound on the contribution of opportunities to earnings inequality. We further decompose the effect of opportunities into a direct effect on earnings and an indirect component which works through the “effort” variables. The decomposition is applied to the distributions of male and female earnings in Brazil, in 1996. While the residual term is large, observed circumstances nevertheless account for around a quarter of the value of the Theil index. Parental education is by far the most important circumstance affecting earnings, dwarfing the effects of race and place of birth.

Inequality and development: the role of dualism

Abstract This paper suggests major factors in country differences in income distribution largely overlooked in the literature on inequality and development. They concern the extent of economic dualism, as proxied macroeconomically by the relative labour productivity of non-agricultural sectors vs. agriculture and related variables. The result is robust with respect to both the composition of the sample, the observation period and inclusion of country fixed effects, in marked contrast to what happens when the analysis is limited to more traditional variables, like GDP per capita or average level of schooling.

Value Versus Growth

The common practice of classifying stocks as either value or growth on the basis of low or high price-to-book (PB) ratios—or, in general, any classification based on a criterion that includes current stock price—is equivocal. The practice is prone to confuse certain structural characteristics of stocks or firms with what are purely time influences. The PB of a firm may be structurally high (high on average over a long period of time), or high only momentarily (as a result of an exceptional price jump), so it would be a growth stock in the first case but not in the second. It would not be clear whether it is the structural characteristics of a stock or the time influences that are responsible for its performance. An experiment using an alternative definition of value and growth that deliberately separates the structural component from the time effects in PB ratios in six major markets demonstrates that, as soon as the time effects are eliminated in the classification process, value no longer outperforms.

Income Distribution, Development and Foreign Trade: A Cross-Sectional Analysis

Abstract This paper analyses cross-sectional evidence on income inequality in developing countries within a consistent theoretical framework where the major explanatory variables are factor endowments, their ownership structure and foreign trade distortions. The resulting explanation of cross-country differences in income distribution is considerably better than what is found in the existing literature. Endowments in mineral resources, land concentration in agricultural exports, trade protection and secondary schooling are shown to be major determinants of differences in income inequality across developing countries.

Representative versus real households in the macro- economic modelling of inequality

To analyze issues of income distribution, most disaggregated macroeconomic models of the Computable General Equilibrium (CGE) type specify a few representative household groups (RHG) differentiated by their endowments of factors of production. To capture “within-group” inequality, it is often assumed, in addition, that each RHG represents an aggregation of households in which the distribution of relative income within each group follows an exogenously fixed statistical law. Analysis of changes in economic inequality in these models focuses on changes in inequality between RHGs. Empirically, however, analysis of household surveys indicates that changes in overall inequality are usually due at least as much to changes in within-group inequality as to changes in the between-group component. One way to overcome this weakness in the RHG specification is to use real households, as they are observed in standard household surveys, in CGE models designed to analyze distributional issues. In this integrated approach, the full heterogeneity of households, reflecting differences in factor endowments, labor supply, and consumption behavior, can be taken into account. With such a model, one could explore how household heterogeneity combines with market equilibrium mechanisms to produce more or less inequality in economic welfare as a consequence of shocks or policy changes. An integrated microsimulation-CGE model must be quite large and raises many issues of model specification and data reconciliation. This paper presents an alternative, top-down method for integrating micro-economic data on real households into modelling. It relies on a set of assumptions that yield a degree of separability between the macro, or CGE, part of the model and the micro-econometric modelling of income generation at the household level. This method is used to analyze the impact of a change in the foreign trade balance, and the resulting change in the equilibrium real exchange rate, in Indonesia (before the Asian financial crisis). A comparison with the standard RHG approach is provided. _________________________________ Ce papier presente une methodologie qui permet de s’affranchir de l’hypothese de l’agent representatif couramment utilisee dans les modeles d’Equilibre General Calculable (EGC). Il s’agit de remplacer les traditionnels agregats correspondant a d’hypothetiques « menages representatifs » par un echantillon de menages reels, tires d’une enquete budget-consommation. Cette approche permet de prendre en compte toute l’heterogeneite des menages etudies, non seulement economique mais egalement demographique, sociologique, etc. Ce type d’approche presente neanmoins l’inconvenient de la taille puisqu’il s’agit de manipuler des bases de donnees de plusieurs milliers d’individus. Ce papier presente un modele applique a l’Indonesie pour etudier l’impact social d’un choc d’epargne exterieure et l’evolution du taux de change reel d’equilibre qui resulte de ce choc (avant la crise financiere asiatique). Les resultats obtenus sont compares a ceux obtenus avec un modele plus “standard” a menages representatifs.