This chapter summarizes the available empirical evidence on the relationship between economic inequality and development. There are three major sections. The first looks at the size distribution of income across countries at a point in time and relates countries' income inequality to their economic characteristics. The second section examines inequality changes within LDCs and looks for relationships between changes in inequality and such economic factors as the stage of economic development and the rate of growth. The third section decomposes LDC inequality, analyzing various statistical approaches for ascertaining the sources of inequality within a country at a single point in time and reviewing the major results and patterns emerging from empirical research.

Inequality at different stages of development: cross-sectional evidence

This section summarizes studies that look at size distribution of income across countries at more or less the same point in time. These studies share a common methodology, consisting basically of looking at a cross section of countries and (1) measuring the degree of inequality in each, (2) measuring other characteristics of each country (e.g., level of GNP, its rate of growth, importance of agriculture in total product, etc.), and (3) relating the level of inequality to that economy's characteristics, using correlation or regression analysis.