This paper explores the propositions that, income inequality is relatively stable within countries; and that it varies significantly among countries. A new and expanded data set provides broad support for both propositions. Drawing on a political economy and capital market imperfection arguments to explain the intertemporal and international variation in inequality, the empirical analysis shows that the predicted variables associated with the first argument (a measure of civil liberties and the initial level of secondary schooling) and the second argument (a measure of financial depth and the initial distribution of land) are indeed important determinants of inequality. This paper explores two propositions regarding income inequality. They are: first, income inequality is relatively stable within countries; and second, it varies significantly across countries.' To illustrate, note that the Gini coefficient in India remained almost constant for forty years (1951-92) with mean 32.6 and standard deviation 2.0.2 In contrast, the variation in Gini coefficients across countries is large: 61.9 in Honduras in 1968 compared with 17.8 in Bulgaria in 1976. If substantiated, these propositions have potentially significant implications for poverty. The significance of the first is obvious - barring any fundamental socio-political change, poverty reduction will depend crucially on the rate of economic growth. Given this, the significance of the second is that in inegalitarian economies the poor will enjoy a smaller share of any national increment in income than in more egalitarian ones. Drawing on a new and expanded data set on inequality (Deininger and Squire, 1996a), the first of the paper's three sections conducts standard statistical tests of the two propositions. The sample comprises 573 observations on the most common measure of inequality - the Gini coefficient - for 49 developed and developing countries covering the period 1947-94. The results broadly confirm our two propositions. Specifically, analysis of variance (ANOVA) shows that about 90% of the total variance in the Gini coefficients

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Explaining International and Intertemporal Variations in Income Inequality

Computable general equilibrium (CGE) models are used widely in policy analysis. The purpose of this paper is to contribute to and facilitate the use of CGE models. The paper includes a detailed presentation of a “standard” CGE model (an equation-by-equation description) and its required database. It incorporates features developed in recent years in research projects conducted at IFPRI. These features, which are of particular importance in developing countries, include household consumption of non-marketed (or “home”) commodities, explicit treatment of transaction costs for commodities that enter the market sphere, and a separation between producing activities and commodities that permits any activity to produce multiple commodities and any commodity to be produced by multiple activities. The paper discusses the implementation of the model in GAMS (the General Algebraic Modeling System) and is accompanied by a self-extracting zip file, which includes the GAMS files for the model, sample databases, simulations, solution reports, and a SAM aggregation program. Although the paper provides a standardized framework for analysis, the analyst is not forced to make “one-size-fits-all” assumptions. The GAMS code is written in a manner that gives the analyst considerable flexibility in model specification.

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A standard computable general equilibrium (CGE) model in GAMS

This paper analyzes the impact of income distribution on growth when investment in human capital is the source of growth and individuals vote over the degree of redistribution in the economy. The model has three main features. First, very different patterns of income distribution are conducive to high growth at different levels of per capita income. Second, growth is associated with an externality whereby investment in human capital by one group increases the productivity of other groups, thus potentially enabling them to invest in human capital. Third, the initial pattern of income distribution and the resulting political equilibrium are crucial in determining whether the transmission of this externality is promoted, in which case growth is enhanced, or prevented, in which case growth is stopped. Using a non-overlapping generations model with voting, I derive several empirical implications. In particular, the model implies an inverted-U relation between levels of inequality and levels of income in cross-sections, but not necessarily in time series, a result that seems consistent with a number of empirical studies.

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Political Equilibrium, Income Distribution, and Growth

The impacts of climate change on livestock and livestock systems in developing countries: A review of what we know and what we need to know

. Recent natural and manmade disasters have had significant regional economic impacts. These effects have been muted, however, by the resilience of individual businesses and of regional markets, which refers to the inherent ability and adaptive responses that enable firms and regions to avoid potential losses. Computable general equilibrium (CGE) analysis is a promising approach to disaster impact analysis because it is able to model the behavioral response to input shortages and changing market conditions. However, without further refinement, CGE models, as well as nearly all other economic models, reflect only “business-as-usual” conditions, when they are based on historical data. This paper advances the CGE analysis of major supply disruptions of critical inputs by: specifying operational definitions of individual business and regional macroeconomic resilience, linking production function parameters to various types of producer adaptations in emergencies, developing algorithms for recalibrating production functions to empirical or simulation data, and decomposing partial and general equilibrium responses. We illustrate some of these contributions in a case study of the sectoral and regional economic impacts of a disruption to the Portland Metropolitan Water System in the aftermath of a major earthquake.

Sherman Robinson

Papers

Policy lessons from trade-focused, two-sector models

Macroeconomics, financial variables, and computable general equilibrium models

Chapter 19 Income distribution and development

Macroeconomic structure and computable general equilibrium models

Chapter 18 Multisectoral models