Rati Ram

Composite indices of physical quality of life, basic needs fulfilment, and income: A ‘principal component’ representation

Abstract In the context of international comparisons, the multivariate method of ’principal components’ is suggested for computing composite indices of economic development that capture per capita income, basic needs fulfilment, and other possible indicators of well-being. The method is conceptually appealing, easy to apply, and seems promising in several directions. Two illustrative applications are given. One develops a composite index based on the three PQLI constituents and per capita GNP for 147 countries. In the other, a composite index of basic needs fulfilment is first computed for 82 countries, and then a more inclusive measure, that also takes account of per capita GNP, is derived.

Financial development and economic growth: Additional evidence

This note suggests that, contrary to the conclusions reached in several recent studies, the empirical evidence does not support the view that financial development promotes economic growth. It is first noted that the predominant pattern in the data for 95 individual countries is that of a negligible or weakly negative covariation between financial development and growth of real GDP per capita. Second, the individual-country correlational picture is a sharp contrast to the correlations based on crosscountry data that have been used in most research on the subject. Third, individual-country estimates of a basic multiple-regression growth model also do not indicate a positive association between financial development and growth. Fourth, in cross-country data and models of the kind that have been used in most studies, when the regression structure is permitted to vary across three subgroups, a huge parametric heterogeneity is observed, and the overall indication is that of a negligible or negative association between financial development and growth.

Defense expenditure and economic growth

This chapter reviews the empirical research on the relation between defense spending and economic growth. A broad flavor of the approaches adopted by different scholars is provided through a list of selected studies on the topic since 1973 and an outline of the variations over Benoits original work that have been explored in the literature. A discussion of three major methodological issues is then undertaken. The following section summarizes the main substantive results reported in various studies, and another section contains some thoughts on the future research on the subject. The chapter ends with a few concluding and summarizing observations.

Roles of Bilateral and Multilateral Aid in Economic Growth of Developing Countries

No abstract available.

Irreversibility of R&D investment and the adverse effect of uncertainty: Evidence from the OECD countries

Abstract Using annual data for nine OECD countries covering the period 1981–1992, we find a much sharper adverse effect of uncertainty on R&D investments, which are likely to be highly irreversible, than on non-R&D (and aggregate) investments.

Population increase economic growth educational inequality and income distribution: some recent evidence

The relationship between population increase, economic growth, education and income inequality was examined in a cross-section study based on data from 26 developing and 2 developed countries. As other studies have noted, high population growth is associated with a less equal income distribution. A 1 percentage point reduction in the rate of population growth tends to raise the income share of the poorest 80% in the less developed world by almost 5 percentage points and is associated with a 1.7 percentage point increase in the income share of the poorest 40%. The relationship between short-run income growth and equality, on the other hand, is strong and positive. Estimates suggest that a 1 percentage point increase in the short-run rate of growth of the gross domestic product (GDP) increases the income share of the bottom 80% by about 2 percentage points and that of the poorest 40% by almost 1 percentage point. Although higher mean schooling appears to be a mild equalizer, educational inequality does not appear to have an adverse effect on income distribution. Overall, these results challenge the widely held belief that there must be a growth-equity trade-off. Moreover, they suggest that the impact of educational inequality on income distribution may be different from that observed in earlier studies, implying a need for caution in using these earlier results as a basis for educational policy development.

Can educational expansion reduce income inequality in less-developed countries?

Abstract A selective review is conducted of several theoretical frameworks that link level and dispersion of schooling with income inequality. About a dozen empirical studies on the subject are briefly discussed, and some new evidence of a preliminary kind is presented. It is pointed out that none of the theoretical constructs seems to generate a clear prediction about the effect of education, especially of the mean level of schooling, on income inequality or absolute poverty. The empirical evidence also appears generally inconclusive. Caution is urged in interpreting the available theory and evidence and in using these for educational and distributional policy choices.

Level of Economic Development and Income Inequality: Evidence from the Postwar Developed World

Using a recent high-quality panel dataset on income distribution for 19 developed countries, the postwar relation between the level of economic development and income inequality is estimated in terms of several Kuznets-type specifications. Contrary to what one might expect on the basis of Kuznetss hypothesis, inequality does not decline with an increase in income even at such high levels of development, but shows an uninverted-U pattern that is characterized by an initial decline and a subsequent increase in income inequality. The estimates suggest that the position noted for the postwar United States is shared widely in the developed world.

Level of Development, Rate of Economic Growth, and Income Inequality

Most of the research mentioned above focused on estimating the relation between the level of economic development, usually proxied by real gross domestic product (GDP) per capita, and income inequality, so as to judge whether an inverted-U pattern is observed. However, notwithstanding the potential significance of the Kuznets paradigm, it should be evident that level of development (or income) is just one determinant of income inequality and that rate of economic growth is another important and related factor. Nevertheless, very few studies have investigated how the rate of growth is related with inequality at various levels of development (or income), except perhaps incidentally and through an additive growth term in Kuznets-type models of inequality. Even the studies that did consider the growth-inequality nexus have reported somewhat contradictory results. For example, an additive GDP-growth term in M. Ahluwalia’s regression estimates indicated a statistically insignificant equalizing effect of growth, and in a later work he noted that

Tropics and economic development: An empirical investigation

Abstract Following Kamarcks (1976) reasoning, crosscountry regressions of income, life expectancy, schooling, human development, population increase, capital accumulation, and economic growth are estimated with the countrys distance from the equator as an explanatory variable. The distance-parameter shows high statistical significance and is quantitatively substantial in all cases. Several versions of the Solow-models formulated by Mankiw et al. (1992) are also reestimated after including the distance variable, which shows high significance in these cases too. Some implications of the regression estimates are noted.