this article were received from Nancy Birdsall, Bill Easterly, Paul Isenman, Ravi Kanbur, Aart Kraay, Branko Milanovic, Giovanna Prennushi, Dominique van de Walle, Nicolas van de Walle, Michael Walton and seminar participants at the World Bank. These are the views of the author, and need not reflect those of the World Bank or any affiliated organization. 1.

We develop a new theoretical link between inequality and growth. In our model, fertility and education decisions are interdependent. Poor parents decide to have many children and invest little in education. A mean-preserving spread in the income distribution increases the fertility differential between the rich and the poor, which implies that more weight gets placed on families who provide little education. Consequently, an increase in inequality lowers average education and, therefore, growth. We find that this fertility-differential effect accounts for most of the empirical relationship between inequality and growth.

In 2008 all ECB publications feature a motif taken from the 10 banknote. This paper can be downloaded without charge from

Abstract: In the last year or so, markedly different claims have been heard within the development community about how just much progress is being made against poverty and inequality in the current period of “globalization. ” This paper provides a non-technical overview of the conceptual and methodological issues underlying these conflicting claims. The paper argues that the dramatically differing positions taken in this debate often stem from differences in the concepts and definitions used and differences in data sources and measurement assumptions. These differences are often hidden from view in the debate, but they need to be considered carefully if one is to properly interpret the evidence. The paper argues that the best available evidence suggests that, if the rate of progress against absolute poverty in the developing world in the 1990s is maintained, then the Millennium Development Goal of halving the 1990 aggregate poverty rate by 2015 will be achieved on time in the aggregate, though not in all regions. The paper concludes with some observations on the implications for policy-oriented debates on globalization and pro-poor growth.

Two trade-offs have been widely seen to severely constrain the scope for attacking poverty using redistributive transfers in poor countries: an equity-efficiency tradeoff and an insurance-efficiency tradeoff. This article provides a critical overview of recent theoretical and empirical work that has called into question the extent of these tradeoffs in poor countries. It is argued that these aggregate trade-offs are often exaggerated; indeed, they may not even be binding constraints in practice, given market failures. There appears to be scope for using carefully designed transfer schemes as an effective tool against both transient and chronic poverty. However, the same factors that weaken the tradeoffs also suggest that efficient redistributive policies might look rather different to the programs often found in practice.

Empirical research on the determinants of economic growth has typically neglected the influence of religion. To fill this gap, we use international survey data on religiosity for a broad panel of countries to investigate the effects of church attendance and religious beliefs on economic growth. To isolate the direction of causation from religiosity to economic performance, we use instrumental variables suggested by our analysis of systems in which church attendance and beliefs are the dependent variables. The instruments are dummy variables for the presence of state religion and for regulation of the religion market, an indicator of religious pluralism, and the composition of religions. We find that economic growth responds positively to the extent of religious beliefs, notably those in hell and heaven, but negatively to church attendance. That is, growth depends on the extent of believing relative to belonging. These results accord with a perspective in which religious beliefs influence individual traits that enhance economic performance. The beliefs are, in turn, the principal output of the religion sector, and church attendance measures the inputs to this sector. Hence, for given beliefs, more church attendance signifies more resources used up by the religion sector.

We argue that social polarization reduces the security of property and contract rights and, through this channel, reduces growth. The first hypothesis is supported by cross-country empirical evidence indicating that social polarization in the form of income inequality, land inequality, and ethnic tensions is inversely related to a commonly-used index of the security of contractual and property rights. In examining the second hypothesis, we restrict our attention to the highly contested role of inequality in income and wealth. The relationship between inequality and growth diminishes considerably when the security of property rights is controlled for in growth regressions. This and other evidence suggests that income inequality reduces growth through its effect on property rights, rather than through any of several competing channels that have been advanced in the literature.

We develop an endogenous growth model with elastic labor supply, in which agents differ in their initial endowments of physical capital. In this context, the growth rate and the distribution of income are jointly determined. We then examine the distributional impact of different ways of financing an investment subsidy. We find that policies aimed at increasing the growth rate tend to result in a more unequal distribution of pre-tax income, consistent with the positive correlation between income inequality and growth observed in the recent empirical literature. However, there seems to be no conflict between efficiency and equity if inequality is measured in terms of the distribution of welfare. JEL Classification: E62, O17, O40.

this paper draw on Findlay and O'Rourke (2001) and O'Rourke and Williamson (1999). I am grateful to my co-authors for permission to draw on our joint work. I am also grateful to Don Davis, Tim Hatton, Richard Kohl, Philip Lane, Gregor Noll, Alan Taylor, Jeff Williamson, and two anonymous referees for helpful comments and useful conversations about these and related matters. The usual disclaimer applies. In so doing it is following in the footsteps of Lindert and Williamson (2001)

Abstract: Inequality is an important threat to the globalization of the world economy that we experience today. This contribution uses the coefficient of height variation as a measure of inequality. This indicator covers not only wage recipients, but also the selfemployed, the unemployed, housewives, children, and other groups who may not participate in a market economy, for the period 1950–79, for which income inequality data is mostly unavailable or inconsistent. It turns out that within-country inequality is higher in time periods of greater openness. This result is confirmed for the time period 1950–2000, and a much broader model. (JEL I12, I32, N33) 1