[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_6320.html
   My bibliography  Save this paper

Explaining Inequality Between Countries: The Declining Role of Political Institutions

Author

Listed:
  • Andrew J. Hussey
  • Michael Jetter
  • Dianne McWilliam
Abstract
Within the fundamental determinants of cross-country income inequality, ‘humanly devised’ political institutions represent a hallmark factor that societies can influence, as opposed to, for example, geography. Focusing on the portion of inequality explainable by differences in political institutions, we decompose annual cross-country Gini coefficients for 95 countries (representing 85 percent of the world population) from 1960-2012. Since 1988, inequality has marginally decreased (from a Gini of 0.525 to 0.521) but the portion that cannot be explained by political institutions has increased substantially (from 0.411 to 0.459). Specifically, the explanatory power of institutions fell rapidly from the late 1980s to the early 1990s. This result prevails when using alternative variables, expanding the sample, weighting countries by population size, and controlling for the remaining fundamental determinants of income: culture and education. Over the same timeframe, the explanatory power of geographical conditions has been rising. This phenomenon appears to be global and is unlikely to be driven by contemporary regional events alone, such as the fall of the Soviet Union, Asian success stories (e.g., China), or institutional monocropping in Africa. A corollary of our finding implies that, if we hold societies responsible for their political institutions, inequality has become notably less fair since the late 1980s.

Suggested Citation

  • Andrew J. Hussey & Michael Jetter & Dianne McWilliam, 2017. "Explaining Inequality Between Countries: The Declining Role of Political Institutions," CESifo Working Paper Series 6320, CESifo.
    • Handle: RePEc:ces:ceswps:_6320
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo1_wp6320.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Aristizábal-Ramírez, María & Canavire Bacarreza, Gustavo J. & Jetter, Michael, 2015. "Income Inequality in Bolivia, Colombia, and Ecuador: Different Reasons," IZA Discussion Papers 9210, Institute of Labor Economics (IZA).
    2. Francois Bourguignon & Victoria Levin & David Rosenblatt, 2004. "Declining International Inequality and Economic Divergence: Reviewing the Evidence Through Different Lenses," Economie Internationale, CEPII research center, issue 100, pages 13-26.
    3. Bossert W., 1996. "Redistribution mechanisms based on individual characteristics," Mathematical Social Sciences, Elsevier, vol. 31(1), pages 51-51, February.
    4. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
    5. Djankov, Simeon & Glaeser, Edward & La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2003. "The new comparative economics," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 595-619, December.
    6. Robert J. Barro, 1999. "Determinants of Democracy," Journal of Political Economy, University of Chicago Press, vol. 107(S6), pages 158-183, December.
    7. Duangkamon Chotikapanich & William E. Griffiths & D. S. Prasada Rao & Vicar Valencia, 2012. "Global Income Distributions and Inequality, 1993 and 2000: Incorporating Country-Level Inequality Modeled with Beta Distributions," The Review of Economics and Statistics, MIT Press, vol. 94(1), pages 52-73, February.
    8. Jean-François Carpantier & Christelle Sapata, 2013. "An Ex-Post View of Inequality of Opportunity in France and its Regions," Journal of Labor Research, Springer, vol. 34(3), pages 281-311, September.
    9. Anthony B Atkinson & François Bourguignon, 2014. "Handbook of Income Distribution," Post-Print halshs-02923231, HAL.
    10. Alberto Alesina & Paola Giuliano & Nathan Nunn, 2013. "On the Origins of Gender Roles: Women and the Plough," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 128(2), pages 469-530.
    11. Alberto Chong & Mark Gradstein, 2007. "Inequality and Institutions," The Review of Economics and Statistics, MIT Press, vol. 89(3), pages 454-465, August.
    12. Acemoglu, Daron & Johnson, Simon & Robinson, James A., 2005. "Institutions as a Fundamental Cause of Long-Run Growth," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 6, pages 385-472, Elsevier.
    13. Daron Acemoglu & Simon Johnson & James A. Robinson, 2002. "Reversal of Fortune: Geography and Institutions in the Making of the Modern World Income Distribution," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(4), pages 1231-1294.
    14. Sudhir Anand & Paul Segal, 2008. "What Do We Know about Global Income Inequality?," Journal of Economic Literature, American Economic Association, vol. 46(1), pages 57-94, March.
    15. Chang, Ha-Joon, 2007. "Stranger than Fiction? Understanding Institutional Changes and Economic Development," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
    16. Clare Leaver & Paul Segal, 2014. "The Global Distribution of Income," Economics Series Working Papers 714, University of Oxford, Department of Economics.
    17. Barro, Robert J. & Lee, Jong Wha, 2013. "A new data set of educational attainment in the world, 1950–2010," Journal of Development Economics, Elsevier, vol. 104(C), pages 184-198.
    18. Daron Acemoglu & Simon Johnson, 2005. "Unbundling Institutions," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 949-995, October.
    19. Axel Dreher, 2006. "Does globalization affect growth? Evidence from a new index of globalization," Applied Economics, Taylor & Francis Journals, vol. 38(10), pages 1091-1110.
    20. Philippe Aghion & Steven Durlauf (ed.), 2005. "Handbook of Economic Growth," Handbook of Economic Growth, Elsevier, edition 1, volume 1, number 1.
    21. David Dollar & Aart Kraay, 2004. "Trade, Growth, and Poverty," Economic Journal, Royal Economic Society, vol. 114(493), pages 22-49, February.
    22. Angus Deaton & Bettina Aten, 2017. "Trying to Understand the PPPs in ICP 2011: Why Are the Results So Different?," American Economic Journal: Macroeconomics, American Economic Association, vol. 9(1), pages 243-264, January.
    23. Steve Dowrick & Muhammad Akmal, 2005. "Contradictory Trends In Global Income Inequality: A Tale Of Two Biases," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 51(2), pages 201-229, June.
    24. Ingvild Almas & Tarjei Havnes & Magne Mogstad, 2012. "Adjusting for age effects in cross-sectional distributions," Stata Journal, StataCorp LP, vol. 12(3), pages 393-405, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bosco, Bruno, 2019. "One size does not fit all: Quantile regression estimates of cross-country risk of poverty in Europe," Economic Analysis and Policy, Elsevier, vol. 62(C), pages 280-299.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Andrew J. Hussey & Michael Jetter & Dianne McWilliam, 2021. "The Fundamental Determinants of Economic Inequality in Average Income Across Countries: The Declining Role of Political Institutions," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 67(1), pages 104-133, March.
    2. Nadezhda V. Baryshnikova & Ngoc T.A. Pham & Maria M. Wihardja, 2016. "Does Political and Economic Inequality Affect Institutional Quality?," The Economic Record, The Economic Society of Australia, vol. 92(297), pages 190-208, June.
    3. Liu, Xianda & Hou, Wenxuan & Main, Brian G.M., 2022. "Anti-market sentiment and corporate social responsibility: Evidence from anti-Jewish pogroms," Journal of Corporate Finance, Elsevier, vol. 76(C).
    4. Abdoul’ Mijiyawa, 2013. "Determinants of property rights institutions: survey of literature and new evidence," Economics of Governance, Springer, vol. 14(2), pages 127-183, May.
    5. Capolupo, Rosa, 2009. "The New Growth Theories and Their Empirics after Twenty Years," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 3, pages 1-72.
    6. In Do Hwang, 2017. "Which Type of Trust Matters?:Interpersonal vs. Institutional vs. Political Trust," Working Papers 2017-15, Economic Research Institute, Bank of Korea.
    7. Costantini, Valeria & Liberati, Paolo, 2014. "Technology transfer, institutions and development," Technological Forecasting and Social Change, Elsevier, vol. 88(C), pages 26-48.
    8. Jones, C.I., 2016. "The Facts of Economic Growth," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 3-69, Elsevier.
    9. Congdon Fors, Heather & Olsson, Ola, 2007. "Endogenous institutional change after independence," European Economic Review, Elsevier, vol. 51(8), pages 1896-1921, November.
    10. Wafa Ghardallou & Dorsaf Sridi, 2020. "Democracy and Economic Growth: a Literature Review," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 11(3), pages 982-1002, September.
    11. Licht, Amir N. & Goldschmidt, Chanan & Schwartz, Shalom H., 2007. "Culture rules: The foundations of the rule of law and other norms of governance," Journal of Comparative Economics, Elsevier, vol. 35(4), pages 659-688, December.
    12. Flachaire, Emmanuel & García-Peñalosa, Cecilia & Konte, Maty, 2014. "Political versus economic institutions in the growth process," Journal of Comparative Economics, Elsevier, vol. 42(1), pages 212-229.
    13. Williamson, Claudia R., 2012. "Dignity and development," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 41(6), pages 763-771.
    14. Aldashev, Gani & Zanarone, Giorgio, 2017. "Endogenous enforcement institutions," Journal of Development Economics, Elsevier, vol. 128(C), pages 49-64.
    15. Lubna Hasan, 2007. "Myths and Realities of Long-run Development: A Look at Deeper Determinants," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 46(1), pages 19-44.
    16. Mahyudin Ahmad, 2019. "Globalisation, Economic Growth, and Spillovers: A Spatial Analysis," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 13(3), pages 255-276, August.
    17. Arthur Silve, 2012. "Complementarity and the resource curse," PSE Working Papers halshs-00728703, HAL.
    18. Michael Kremer & Jack Willis & Yang You, 2021. "Converging to Convergence," NBER Chapters, in: NBER Macroeconomics Annual 2021, volume 36, pages 337-412, National Bureau of Economic Research, Inc.
    19. ROUGIER Eric, 2015. ""The parts and the whole”: Unbundling and re-bundling institutional systems and their effect on economic development," Cahiers du GREThA (2007-2019) 2015-12, Groupe de Recherche en Economie Théorique et Appliquée (GREThA).
    20. Arthur Silve, 2018. "Asset Complementarity, Resource Shocks, and the Political Economy of Property Rights," Journal of Conflict Resolution, Peace Science Society (International), vol. 62(7), pages 1489-1516, August.

    More about this item

    Keywords

    fairness of income inequality; fundamental determinants of development; international inequality; political institutions;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_6320. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.