Inequality of Opportunity and Economic Growth : A Cross-Country Analysis

Income differences arise from many
sources. While some kinds of inequality, caused by effort
differences, might be associated with faster economic
growth, other kinds, arising from unequal opportunities for
investment, might be detrimental to economic progress. This
study uses two new metadata sets, consisting of 118
household surveys and 134 Demographic and Health Surveys, to
revisit the question of whether inequality is associated
with economic growth and, in particular, to examine whether
inequality of opportunity -- driven by circumstances at
birth -- has a negative effect on subsequent growth. The
results are suggestive but not robust: while overall income
inequality is generally negatively associated with growth in
the household survey sample, we find no evidence that this
is due to the component associated with unequal
opportunities. In the Demographic and Health Surveys sample,
both overall wealth inequality and inequality of opportunity
have a negative effect on growth in some of the preferred
specifications, but the results are not robust to relatively
minor changes. On balance, although the results are
suggestive of a negative association between inequality and
growth, the data do not permit robust conclusions as to
whether inequality of opportunity is bad for growth.