Income Distribution in Developing Economies: Conceptual, Data, and Policy Issues in Broad-Based Growth

Abstract

[Excerpt] The aim of economic development is to raise the standard of living of a country's people, especially its poor. Economic growth, particularly when broadly based, is a means to that end. 'Underdevelopment' can be defined as a state of severely constrained choices. When one is choosing from among an undesirable set of alternatives, the outcome will itself be undesirable. Standards of living will be low. If standards of living are to be improved, people must have a better set of alternatives from which to choose. 'Economic development' is the process by which the constraints on choices are relaxed. Based on ample evidence from microeconomic studies (see, for instance, the Nobel Prize winning research of T. W. Schultz 1980), we may be confident that when poor people in the developing world have better options from which to choose, the choices they make will lead them to enjoy better outcomes, hence raising standards of living. Accordingly, the task of economic development is to enhance the alternatives from which to choose, that is, the 'choice set'. 'Broad-based growth' means that the choice set is improved for all economic strata. There is good reason to expect that the upper and middle classes have many mechanisms at their disposal for benefiting from the growth process. These groups gain when economic growth takes place. It is less certain whether the poor are also reached by growth.