Income Inequality, Development, and Dualism: Results from an Unbalanced Cross-National Panel

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Abstract
We investigate the relationship between income inequality and economic development using an unbalanced cross-national data set that allows observations on inequality and development for several years for the same country. The 88 countries in this data set contribute 279 observations dated from 1952 to 1988. income inequality is measured in three ways-as income share of the top quintile of income-receiving units and with two estimates of the Gini coefficient (decile-based and quintile-based). The relationship between income inequality and development in this data set exhibits the inverted-U shape characteristic of the Kuznets curve. Regression analyses using pooling techniques with the assumptions of a random effects model show that the curvilinearity is largely accounted for by a model based on three major processes: labor force shifts from agriculture to industry; the demographic transition; and the spread of education. These processes are represented in regression models by four variables. The variables have significant effects on income inequality in directions predicted by the model: sector dualism (positive effect); percent of labor force in agriculture (negative effect); natural rate of population increase (positive effect); and secondary school enrollment (negative effect). The effects of political democracy, Marxist-Leninist regime, horticultural or agrarian subsistence technology prior to industrialization, an indicator for Taiwan, and calendar time are also estimated.

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