9991 MARCH 1979 Redistribution with7 Public Disclosure Authorized Growth -lollis C/henery A1if)t ek AS. I4hi,wti vaI/? C/ Public Disclosure Authorized CL.G- Bell Johrn I-[ Ddloy Richard Jolly Public Disclosure Authorized A Joint Study by the AVbo1d Banks Deavelopmeiit Researclh Center and the Institute of Developmuent StUdies at the University of Sussex _ Public Disclosure Authorized REDISTRIBUTION WITH GROWTH The views expressed in this book are those of the individual authors and not necessarily those of the World Bank or the Institute of Development Studies. Edited by Ian Bowen and Brian J. Svikhart REDISTRIBUTION WITH GROWTH Policies to improve income distribution in developing countries in the context of economic growth- a joint study by the World Bank's Development Research Center and the Institute of Development Studies at the University of Sussex by HOLLIS CHENERY MONTEK S. AHLUWALIA C.L.G. BELL JOH N H. DULOY RICHARD JOLLY Publhshedbr the WORLD BANK and the INSTITUTE OF DEVELOPMENT STUDIES UJniversity of Sussex OXFORD UNIVERSITY PRESS Oxford University Press NEW YORK OXFORD LONDON GLASGOW TORONTO MELBOURNE WELLINGTON HONG KONG TOKYO KUALA LUMPUR SINGAPORE JAKARTA DELHI BOMBAY CALCUTTA MADRAS KARACHI NAIROBI DAR ES SALAAM CAPE TOWN ( 1974 by the International Bank for Reconstruction and Development / The World Bank 1818 H Street, N.W., Washington, D.C. 20433 U.S A. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior permission of Oxford University Press. Manufactured in the United States of America. The views and interpretations in this book are the authors' and should not be attributed to the World Bank, to its affiliated organizations, or to any individual acting in their behalf. ISBN 0 19 920070 X paperback edition First printing August 1974 Second printing July 1975 Third printing March 1979 PREFACE This report has its origins in discussions between members of the In- stitute of Development Studies (University of Sussex) and the Develop- ment Research Center of the World Bank over the past several years. Our point of departure was the notable inconsistency between the general per- ception of income distribution and employment as major problems for developing countries on the one hand, and the analytical tools available to policy-makers on the other. In order to focus the attention of both policy- makers and researchers-on the approaches to this problem that are now available, we commissioned a set of papers covering the "state of the art" in the design of policies in this field. These papers were discussed at a workshop convened at the Rockefeller Foundation Conference Center in Bellagio in April 1973. A first draft of this Report was prepared by five of the participants on the basis of the workshop discussion and the contributed papers. This document was widely circulated and discussed at a seminar held at the In- stitute of Development Studies in Sussex. This conference brought together most of the original participants plus a number of analysts and policy-makers from both industrial countries and the Third World. In these discussions we tried to translate the general approach proposed in the first Report into a concrete set of proposals for action that more fully reflect the variety of conditions in developing countries. The present document attempts to produce a synthesis of the initial ideas and to develop them in a more solid analytical form. This process has been helped by a series of seminars on the theoretical and practical aspects of the problems of poverty in the World Bank, the Institute of Development Studies, and the Center for International Affairs at Harvard University. While acknowledging gratefully the many contributions from our colleagues, they clearly cannot be implicated in the final result. Similarly, while we have all reacted at length to each other's drafts, the in- dividual chapters of this report remain the responsibility of their authors. Although we agree on the major themes advanced, we have not tried to produce a "committee report" that would reconcile all our differences. Such an attempt seems inappropriate in a document that tries to bring together the perceptions of policy-makers as to the nature of economic and political problems and the suggestions of researchers as to how to solve them. vI REDISTRIBUTION WITH GROWTH We are grateful to the Rockefeller Foundation for inviting us to use their facilities at the Villa Serbelloni for our initial discussions. We also owe a particular debt to Professor Dudley Seers of the Institute of Devel- opment Studies, who took the initiative in proposing this collaborative effort but whose subsequent participation was unfortunately limited by ill- ness. A special word of thanks is due D.C. Rao of the World Bank for his notable contribution to our analysis of urban poverty and to the six authors of the country analyses included in the Annex. Finally, we are indebted to Hans Singer, who first developed the theme of redistribution with growth in a paper prepared for the report of the In- ternational Labour Office's Employment Mission to Kenya (Employment, Incomes and Equality, ILO, 1972), organized in connection with the World Employment Programme of the ILO. HOLLIS CHENERY MONTEK S. AHLUWALIA C.L.G. BELL JOHN H. DULOY RICHARD JOLLY TABLE OF CONTENTS Preface v Introduction xiii PART ONE REORIENTATION OF POLICY 1. ' Income Inequality: Some Dimensions of the Problem Montek S. Ahluwalia 3 Limitations of the data 4 The extent of inequality: relative and absolute poverty 6 The determinants of inequality 16 Economic characteristics of poverty groups 19 Appendix to Chapter 1 27 11. The Economic Framework Montek S. Ahluwalia and Hollis Chenery 38 Redefining objectives: growth and distribution 38 Toward a theory of distribution and growth 42 Alternative strategies 47 Appendix to Chapter 11 50 III. The Political Framework C.L.G. Bell 52 The politics of redistribution 53 Forms of policy intervention 56 Mobilizing support 65 The administrative system 67 The planner as a political actor 69 Conclusions 71 IV. The Scope for Policy Intervention Montek S. Ahluwalia 73 Areas of intervention 73 Factor prices, employment, and income 74 Ownership and control of assets 78 Education and human capital 81 Taxation and resource mobilization 83 Public provision of consumption goods 85 Intervention in commodity markets 86 The state of technology 88 The choice of policy packages 89 V. Formulating a Strategy C.L.G. Bell and John H. Duloy 91 Target groups 91 A typology of countries 93 viii REDISTRIBUTION WITH GROWTH The projection model 94 Some alternative strategies 99 Appendix to Chapter V 104 VI. Rural Target Groups C.L.G. Bell and John H. Duloy 113 Effects of leakages 113 The rural poor 116 Small farmers 125 Submarginal farmers and landless laborers 133 Conclusions 135 VII. Urban Target Groups D. C. Rao 136 Strategy options 139 Production sector strategies 143 Transfer strategies 147 Conclusions 156 VIII. International Dimensions Richard Jolly 158 The dimensions of international inequality 159 Background to international policy 161 International trade 163 Technology and investment 170 The role of international agencies and aid 174 Conclusions 179 PART Two QUANTIFICATION AND MODELING IX. Available Planning Models Hollis Chenery and John H. Duloy 183 Alternative frameworks for analysis 184 Production and the demand for labor 186 Labor supply and educational structure 189 Consumption and income distribution 191 Conclusions 194 X. Sectoral, Regional, and Project Analysis John H. Duloy 195 Multilevel planning 195 Sectoral models 197 Regional models 201 Project analysis 205 XI. A Model of Distribution and Growth Montek S. Ahluwalia and Hollis Chenery 209 A growth model for a segmented economy 210 Simulating growth and distribution patterns 218 TABLE OF CONTENTS ix Redistribution through growth: some policy alternatives 223 Conclusions: the choice of strategy 234 XII. Statistical Priorities C.L.G. Bell and John H. Duloy 236 The poverty profile 237 Priorities for aggregate analysis 240 Special surveys 243 XIII. Research Directions Hollis Chenery and John H. Duloy 245 Toward a theory of income distribution in deyeloping countries 245 Economy-wide analysis 246 Partial analysis 247 Conclusions 248 PART THREE ANNEX AND BIBLIOGRAPHY Annex. Redistribution with Growth: Some Country Experience An Overview, Richard Jolly 253 India, Pranab K. Bardhan 255 Cuba, Dudley Seers 262 Tanzania, Reginald H. Green 268 Sri Lanka, Lal Jayawardena 273 South Korea, Irma Adelman 280 Taiwan, Gustav Ranis 285 Bibliography 291 CONFERENCE PARTICIPANTS xi Participants in the Conference on Redistribution with Growth, Institute of Development Studies, University of Sussex (September 1973) were: *Irma Adelman University of Maryland Ponniah Arudsothy University of Malaysia *Montek S. Ahluwalia Development Research Center, World Bank *Pranab Bardhan Delhi School of Economics *C L.G. Bell Institute of Development Studies *Charles Blitzer Development Research Center, World Bank Gordon Bridger Economic Planning Staff, ODA, London *Jorge Cauas Development Research Center, World Bank Hikmet Cetin Economics Department, Planning Organisation, Ankara *Holis Chenery World Bank *Peter Clark Development Research Center, World Bank- *John H. Duloy Development Research Center, World Bank I. J. Ebong Ministry of Economic Development and Reconstruc- tion,