Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Equity and Growth in a Globalizing World Ravi Kanbur Michael Spence Public Disclosure Authorized Editors Equity and Growth in a Globalizing World Equity and Growth in a Globalizing World Edited by Ravi Kanbur and Michael Spence Contributions by Ann Harrison Ravi Kanbur Stephan Klasen Michael Spence Simon Maxwell Abhijit Banerjee Margaret McMillan Agnès Bénassy-Quéré Andrew Morrison Nancy Birdsall Jean-Philippe Platteau François Bourguignon Lant Pritchett Stefan Dercon Dhushyanth Raju Antonio Estache Mark Rosenzweig Francisco H. G. Ferreira Nistha Sinha Jérémie Gignoux Amedeo Spadaro Jan Willem Gunning Gordon Hanson COMMISSION ON GROWTH AND DEVELOPMENT © 2010 The International Bank for Reconstruction and Development / The World Bank On behalf of the Commission on Growth and Development 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org www.growthcommission.org E-mail: [email protected] [email protected] All rights reserved 1 2 3 4 13 12 11 10 This volume is a product of the Commission on Growth and Development, which is sponsored by the following organizations: Australian Agency for International Development (AusAID) Dutch Ministry of Foreign Affairs Swedish International Development Corporation Agency (SIDA) U.K. Department of International Development (DFID) The William and Flora Hewlett Foundation The World Bank Group The fi ndings, interpretations, and conclusions expressed herein do not necessarily refl ect the views of the sponsoring organizations or the governments they represent. The sponsoring organizations do not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgement on the part of the sponsoring organizations concerning the legal status of any territory or the endorsement or acceptance of such boundaries. All queries on rights and licenses, including subsidiary rights, should be addressed to the Offi ce of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: pubrights@ worldbank.org. ISBN: 978-0-8213-8180-9 eISBN: 978-0-8213-8181-6 DOI: 10.1596/978-0-8213-8180-9 Library of Congress Cataloging-in-Publication Data has been applied for. Contents Preface xi Workshop Participants xv About the Editors and Contributors xvii Acknowledgments xxv Abbreviations xxvii 1 Equity within and between Nations 1 Ravi Kanbur and Michael Spence 2 The Millennium Development Goals: An Assessment 17 François Bourguignon, Agnès Bénassy-Quéré, Stefan Dercon, Antonio Estache, Jan Willem Gunning, Ravi Kanbur, Stephan Klasen, Simon Maxwell, Jean-Philippe Platteau, and Amedeo Spadaro 3 Globalization, Growth, and Distribution: Framing the Questions 41 Ravi Kanbur Contents v 4 Investment Effi ciency and the Distribution of Wealth 71 Abhijit V. Banerjee 5 Gender Equality, Poverty Reduction, and Growth: A Copernican Quest 103 Andrew Morrison, Dhushyanth Raju, and Nistha Sinha 6 Inequality of Opportunity for Education: Turkey 131 Francisco H. G. Ferreira and Jérémie Gignoux 7 The (Indispensable) Middle Class in Developing Countries 157 Nancy Birdsall 8 Outlining a Research Agenda on the Links between Globalization and Poverty 189 Ann Harrison and Margaret McMillan 9 Global Wage Inequality and the International Flow of Migrants 205 Mark R. Rosenzweig 10 International Migration and Development 229 Gordon H. Hanson 11 The Cliff at the Border 263 Lant Pritchett Index 287 Box 2.1 Millennium Development Goals 18 Figures 2.1 Change in Poverty (MDG1) between 1990 and 2006, Fragile States (CPIA Defi nition) 22 2.2 Improvements in MDGs between 1990 and 2006, Nonfragile States (CPIA Defi nition) 23 2.3 Heterogeneity across MDGs 25 2.4 Correlation of Annual Growth Rates, 1990–2006 28 vi Contents 2.5 Correlation between Growth and Change in Primary School Completion Rate, Sub-Saharan Africa Countries, 1996–2006 29 4.1 Parametric Returns to $0–$1,000 in Capital, Mexico 83 4.2 Distribution of Profi ts per Hectare 86 4.3 Profi t-Wealth Ratios and Weather Variability, by Wealth and Class, Indian ICRISAT Villages 88 4.4a Capital Stock—Net Cohort Effect, Gounders and Outsiders 95 4.4b Capital-Export Ratio, Capital-Production Ratio—Net Cohort Effects, Gounders and Outsiders 95 6.1 Enrollment-Age Profi les by Gender and Region 137 6.2 Enrollment-Age Profi les by Type of Area 139 6.3 Enrollment-Age Profi les by Mother’s Education 140 6.4 Enrollment-Age Profi les by Number of Children 141 6.5 Enrollment-Age Profi les by Quartiles of the Asset Index 142 6.6 Enrollment-Age Profi les for One Highly Disadvantaged and One Highly Advantaged Group 145 6.7 Distribution of Standardized Turkish Reading Test Scores under Three Alternative Assumptions about Selection into PISA Participation 151 7.1 Ratios of Income or Consumption per Capita by Ventiles of the Distribution of Selected Countries, ca. 2005 166 7.2 Proportion of Total Income/Consumption Held by Middle Class, 1990 and 2005 170 7.3 Income Histograms for Selected Countries and Years 171 7.4 Middle-Class Size versus Income (Alternate), 1990 and 2005 181 8.1 Average Income and Net Food Exports by Decade in Repeated Cross-Section of Developing Countries 199 8.2 Correlation between Poverty and Protection (Tariffs) 200 9.1 Relationship between Log Skill Price (One Skill) and Log of College Plus Skill Price 216 9.2 Predicted 1996 Annual Earnings of High School and College Graduates Based on NISP Skill Prices, Selected Countries 218 9.3 Predicted 1996 Earnings Based on NISP Skill Prices by Schooling Level and Schooling Return, Bangladesh and the Republic of Korea 220 10.1 Persistence in Emigration Rates, 1990 and 2000 236 10.2 Emigration Rates and Per Capita GDP, 2000 237 10.3 Emigration Rates for the More Educated, 2000 238 10.4 Persistence in Emigration of the Highly Educated, 1990 and 2000 239 Contents vii 10.5 Selection of Emigrants in Terms of Education, 2000 240 11.1 New States Added Each Year, by Region, 1943–94 269 11.2 Differences in Trade Flows between British Columbia and Ontario and Texas 270 11.3 Wage Profi les to Estimate the Wage Gap 272 11.4 View of the Flatland of Goods and Capital from the Cliff against Labor Mobility 278 11.5 Comparing Wage Gaps across Borders to Wage Gaps within Spatially Integrated Labor Markets 280 Tables 4.1 Asset Groups and Loans, Six Villages in Kerala and Tamil Nadu 76 4.2 OLS and IV Estimates of the Effects of Income on Consumption, Three Regions of Côte d’Ivoire 80 4.3 Farm-Size Productivity Differences, Selected Countries 87 6.1 Circumstances at Birth and Enrollment at Age 15: A Partial Correlation Analysis 143 6.2 Reduced-Form Regression of Standardized Test Scores on Circumstances 148 6.3 Opportunity Share of Inequality in Educational Achievement with Correction for Selection into PISA Participation at Age 15 152 7.1 Assets of Income/Consumption Groups, Selected Countries 168 7.2 Gini Coeffi cients of Income/Consumption of Middle Class, Selected Countries, 1990 and 2005 168 7.3 Distribution Statistics, Selected Countries, 1990 and 2005 174 7.4 Average Education of Household Head, by Class, Selected Countries and Years 176 7.5 Number of Household Members, Poor, Middle Class, and Rich, Selected Countries and Years 177 7.6 Household Characteristics for Occupation/Pay Period, Selected Countries 178 7.7 Absolute Size of Middle Class and Middle Class plus Rich 179 A7.1 Summary Statistics and Income Ratios for Selected Countries, 2005 184 9.1 Characteristics of Global Earnings Data Sets 214 9.2 Test of Mincer Model: Fixed-Effects-Country Log Wage Regression Coeffi cients from NIS Using Bartik School Quality Data and Log of Hourly Wage for Men at Last Job before Coming to the United States 215 viii Contents 9.3 Global Inequality: Comparisons of the Global Variation in Schooling, Schooling Returns, Per Capita GDP, and Skill Prices 218 9.4 Effects of Home Country Skill Price, GDP, and Distance on Log of Number and Average Schooling Attainment of U.S. Employment Visa Principal Immigrants in 2003 224 9.5 Effects of Home Country Skill Price, GDP, and Distance on Log of Number and Exit Rate of Foreign University Students in the United States, 2004 225 10.1 Share of OECD Immigrants by Sending Region, 2000 234 10.2 Share of Foreign-Born Population in Total Population, Select OECD Countries, 1995–2004 235 10.3 Share of OECD Immigrants, by Receiving Region and Education, 2000 245 10.4 Workers’ Remittances and Compensation of Employees, 1992–2005 251 11.1 Wages of Observably Equivalent Workers across U.S. Border for 42 Countries, Comparing Low-Skill, 35-Year-Old Males 272 11.2 Comparison of Annual Wage Gains from International Movement of Marginal Workers with Present-Value Lifetime Wage Gains to Marginal Workers from Different in Situ Antipoverty Interventions 276 Contents ix Preface The Commission on Growth and Development was established in April 2006 in response to two insights: people do not talk about growth enough, and when they do, they speak with unearned conviction. Too often, people overlook economic growth when thinking about how to tackle the world’s most pressing problems, such as poverty, illiteracy, and unemployment. At the same time, their understanding of the mechanics of growth is less defi ni- tive than commonly thought—even though advice is often given to develop- ing countries with great confi dence. Consequently, the Commission’s mandate is to “take stock of the state of theoretical and empirical knowl- edge on economic growth with a view to drawing implications for policy for the current and next generation of policy makers.” To help assess the state of knowledge, the Commission invited lead- ing academics and policy makers from around the world to a series of 12 workshops held from 2007 to 2009 in Washington, DC; New York City, NY; New Haven, CT; and Cambridge, MA.