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From The World Bank Group Documents and Reports Archive
World Development Reports
World Development Report 2006:
Equity and Development

Equity Enhances the Power of Growth to Reduce Poverty

WASHINGTON, September 20, 2005 — Equity, defined primarily as equality of opportunities among people, should be an integral part of a successful poverty reduction strategy anywhere in the developing world, says the World Bank's annual 2006 World Development Report.

"Equity is complementary to the pursuit of long-term prosperity," said François Bourguignon, the Bank's Chief Economist and Senior Vice President for Development Economics, who guided the team that produced the report. "Greater equity is doubly good for poverty reduction. It tends to favor sustained overall development, and it delivers increased opportunities to the poorest groups in a society."

World Development Report 2006 analyzes the relationship between equity and development. The report documents the persistence of inequality traps by highlighting the interaction between different forms of inequality. It presents evidence that the inequality of opportunity that arises is wasteful and inimical to sustainable development and poverty reduction. It also derives policy implications that center on the broad concept of leveling the playing field-both politically and economically and in the domestic and the global arenas.

The report recognizes the intrinsic value of equity but aims primarily to document how a focus on equity matters for long-run development.

It has three parts:
Part I considers the evidence on inequality of opportunity, within and across countries.
Part II asks why equity matters, discussing the two channels of impact (the effects of unequal opportunities when markets are imperfect, and the consequences of inequity for the quality of institutions a society develops) as well as intrinsic motives.
Part III asks how public action can level the political and economic playing fields. In the domestic arena, it makes the case for investing in people, expanding access to justice, land, and infrastructure, and promoting fairness in markets. In the international arena, it considers leveling the playing field in the functioning of global markets and the rules that govern them-and the complementary provision of aid to help poor countries and poor people build greater endowments.

Text of World Development Report 2006

   Part I: Inequity within and across countries

   Part II: Why does equity matter?

   Part III: Leveling the economic and political playing fields

Background papers on equity and development prepared for World Development Report 2006: Equity and Development:

Claessens, Stijn and Enrico Perotti. 2005.
The Links between Finance and Inequality: Chanels and Evidence.
Much attention has recently been given to whether market reforms reduce or increase inequality. Inequality often reflects unequal access to productive opportunities and recent evidence has highlighted the presence of onerous barriers to entry, especially in developing countries. This paper focuses on the relationships between inequality and finance. In principle, a better financial system can help overcome barriers, and thereby increase economic growth and reduce inequality. Indeed, a more developed, that is deeper, financial sector has been shown to aid economic growth. Financial reform will only reduce inequality, however, if it improves access for more individuals with growth opportunities. Reforms thus need to broaden, not just deepen financial systems.
Decker, Klaus, Caroline Sage and Milena Stefanova. 2005.
Law or Justice: Building Equitable Legal Institutions.
It is now widely accepted that the ‘rule of law’ is key to sustainable development. The different legal or rule-based systems in any given society underpin the institutions that govern both market and non-market interactions; they determine the distribution of economic, social and political rights and obligations affecting both economic and noneconomic relationships. They shape the regulation of market practices and the delivery of public services., and hence the opportunities people have to take part in economic activity and generate fair returns.1 Legal institutions also provide mechanisms to mediate conflict resolve disputes and sustain peace and order.
Hoff, Karla. 2004.
What Can Economists Explain by Taking into Account People's Perceptions of Fairness? Punishing Cheats, Bargaining Impasse, and Self-Perpetuating Inequalities.
Because many individuals value being treated fairly (relative to their reference set) and treating others fairly (relative to their social group), historical belief systems that create vast social distance between observationally distinct social groups, and that stereotype certain social groups as inferior, may tend to perpetuate inequality. The poorest members of a society are likely to be not only without economic resources, but also to be from stigmatized social groups, an identity that is likely to make their condition more difficult to change.
Pinglé, Vibha. 2005.
Faith, Equity, and Development.
Religion, as Casanova observes, went public in the 1980s and it has exhibited a Janus face since – “as the carrier not only of exclusive, particularist, and primordial identities but also of inclusive, universalist, and transcending ones.”1 It has worn this Janus face because, I argue, religion has for sometime been torn by the identity politics of our times, consisting of two conceptually distinguishable phenomena and processes: the politics of equal dignity, and the politics of difference. These two political dramas have used the discourse of religion and are leading to new and not surprisingly contradictory interpretive strands of modernity, development, and equity.
Rao, Vijayendra. 2004
Symbolic Public Goods and the Coordination of Collective Action: A Comparison of Local Development in India and Indonesia.
Most economists think of common property as physical – a plot of land, a body of water, a forest – and as bounded within geographic space. In this paper, building on work in social theory, I argue that common property can also be social – defined within symbolic space. People can be bound by well defined social circles, creating agglomerations that have characteristics similar to common property. I call these circles and agglomerations “symbolic public goods” and make the case that such constructs are central to understanding collective action. Typically when anthropologists discuss the symbolic functions of groves, lakes, water resources etc. they contrast indigenous, local, meanings with routinizing state-level bureaucratic apparatuses that circulate at the national and transnational level. However, national-level symbolic institutions can also percolate downward – shifting local constructions of identity and social organization and changing the incentives for collective behavior. As development policy becomes increasingly decentralized, this “production of locality” plays a central in shaping the institutions of decentralization. Thus symbols can have important tangible, material outcomes. The point is illustrated by a comparative analysis of constructions of nationalism in India and Indonesia, and their significant impact that they have had on local development and public service delivery.
Ravallion, Martin. 2005
Inequality is Bad for the Poor.
It has been argued that inequality should be of little concern in poor countries on the grounds that: (i) absolute poverty in terms of consumption (or income) is the overriding issue in poor countries, and (ii) the only thing that really matters to reducing absolute income poverty is the rate of economic growth. This article takes (i) as given but questions (ii). It is argued that there are a number of ways in which the extent of inequality in a society, and how it evolves over time, influences the extent of poverty today and the prospects for rapid poverty reduction in the future.
Chirayath, Leila, Caroline Sage and Michael Woolcock. 2005
Customary Law and Policy Reform: Engaging with the Plurality of Justice Systems.
The importance of building effective legal and regulatory systems has long been recognized by development professionals, yet there have been few programmatic initiatives that have translated empirical evidence and political intention into sustained policy success. A key reason is that such efforts have too often consisted of top-down technocratic initiatives that have inadequately appreciated the social and cultural specificity of the particular context in which they operate, as well as the complexity of the systems they have attempted to create. Justice sector reforms have frequently been based on institutional transplants, wherein the putatively ‘successful’ legal codes (constitutions, contract law, etc.) and institutions (courts, legal services organizations, etc.) of developed countries have this been imported almost verbatim into developing countries. Reforms have often lacked any clear theory about the roles and functions of justice systems, and have failed to consider how successful legal systems in developed countries were actually constructed—including how they gained authority and legitimacy. Local level context and the systems of justice actually operating in many contexts were largely ignored. As such, justice sector reformers have failed to acknowledge, and thus comprehend, how the systems—which, at least in rural areas, are predominantly customary, idiosyncratic to specific sub-regional and cultural contexts, and residing only in oral form—by which many people (if not most poor people) in developing countries order their lives function.
The following papers were prepared in collaboration with the U. K. Department for International Development (DfID) and the World Bank's Social Development Department (see the November 15, 2004 Seminar on Promoting Equity in Development, under Consultations):

Andersson, Martin and Christer Gunnarsson. 2004
Egalitarianism in the Process of Modern Economic Growth: The Case of Sweden.
In this paper an analytical framework is developed where the poorly understood question of the long-term relationship between equality and growth is addressed. The authors go on to demonstrate the interconnectedness of egalitarianism and growth through the process of structural change in the case of Sweden during the last two centuries with emphasis on the drive to Modern Economic Growth. The authors argue that while the successful Swedish development obviously is unique and conditioned by specific historical circumstances, valuable lessons could nevertheless be drawn for current LDCs.
The Swedish case demonstrates that the agricultural transformation, spurred by the enclosure movement, paved the way for surplus production and commercialisation through the inclusion of the peasantry. This inclusion together with subsequent institutional arrangements sustained egalitarianism and became fundamental elements in the rise of the Swedish industrial market economy.
Barrientos, Armando. 2004
Cash Transfers for Older People Reduce Poverty and Inequality.
The paper discusses the poverty and inequality reduction properties of non-contributory pension in Brazil, South Africa and Bangladesh. It examines the development of non-contributory pension programmes in the countries involved, and the institutional factors behind their extension and current sustainability. It also examines the incidence of non-contributory pension programmes on poverty and inequality.
R. Black, C. Natali and J. Skinner, 2005
Migration and Inequality.
Yet it is also clear that migration - and perhaps especially international migration - is an activity that carries significant risks and costs. As such, although migration is certainly rooted, at least in part, in income and wealth inequalities between sending and receiving areas, it does not necessarily reduce inequality in the way intended by many migrants. Much depends on the distribution of these costs and benefits, both within and between sending and receiving countries and regions. Also important in terms of the aggregate impact of migration on sending societies is the selectivity of migration itself. Clearly if most migrants were to come from the poorest sections of society, and they were to achieve net gains from migration, this would act to reduce economic inequality at least, all other things being equal. But migrants are not always the poorest, they do not always gain, and other factors are not equal.
Boix, Carles. 2004
Spain: Development, Democracy and Equity.
In the last half century Spain has undergone a dramatic and by most counts successful political and economic transformation from relative underdevelopment and authoritarianism to wealth and democracy. In the immediate aftermath of World War II, which resulted in the re-establishment of democracy in Western Europe, Spain remained a culturally and diplomatically isolated country, governed by authoritarian institutions. Moreover, whereas democratic Europe experienced a period of rapid economic growth and growing trade integration, Spain was burdened by the destruction yielded by its civil war fought in the 1930s, the pursuit of autarkic policies and a long history of relative poverty. Following the decision to liberalize its economy in the late 1950s, Spain quickly transformed into a modern manufacturing and service-based economy, experiencing unprecedented levels of prosperity, massive urbanization and a growing middle class. With the death of its dictator in 1975, Spain embarked in a peaceful transition to democracy, the construction of a broad welfare state and its integration in the European Union.
de Haan, Arjan. 2004
Disparities within India's Poorest Regions: Why Do the Same Institutions Work Differently in Different Places?
Orissa, now India’s poorest state, is marked by surprising high levels of disparities. Regional disparities in poverty levels are marked, with signs of divergence over the last two decades; human development indicators (health, education, knowledge and voice) are equally unequally distributed, though with some signs of convergence. Social group disparities are large too, on all indicators, and again few signs that such disparities are being reduced, with adivasis more that two times more likely to be in poverty than non-deprived groups (which underestimates disparities between extremes), usually suffering disproportionally from land alienation and displacement. Gender disparities are marked, with high MMR, gaps in education, worsening sex ratios, and cases of loss of livelihood opportunities. Significantly, the various forms of disparities overlap and mutually reinforce each other, with the tribal-upland vs. coastal-elite forming the extreme ends of a range of disparities, possibly creating poverty traps or ‘log-jams of disadvantage’.
Deshpande, Ashwini. 2005.
Affirmative Action in India and the United States.
Caste in India and race in the USA are often compared for their institutional similarities, and also because these categories form the social basis on which the affirmative action program in the two countries is based. While disadvantage and discrimination produce similar outcomes for certain groups within caste- or race-divided societies, it is important to understand the differences between the two systems. If race is a system of ascriptive or color-based disparities, caste can be called a system non-ascriptive or non-color based disparities. The caste system is prevalent primarily in the Indian subcontinent, but there are several other examples of non- color-based disparities in large parts of Asia, Africa and Europe.
Lucero, Jose Antonio. 2004.
Indigenous Political Voice and the Struggle for Recognition in Ecuador and Bolivia.
Indigenous struggles in Ecuador and Bolivia provide instructive and challenging cases of the politics of (in)equity in that conditions of economic and political crisis (the “lost decade”) coincided with the emergence of striking indigenous political voice (a decade in which “Indians won” as Luis Macas put it). Ecuador and Bolivia are often described as among the more economically and politically troubled countries in the Americas. These two Andean states are sometimes called the poorest countries in the hemisphere as a majority of people in each country lives below the poverty line (Ecuador 67%; Bolivia 63%). With the more comprehensive metric of the Human Development Index, these states fare a bit better but still decidedly in the bottom half of Medium Human Development countries; Ecuador occupying the 100th place, Bolivia the 114th in the HDI rankings of 177 countries.1 Politically, “inchoate party systems” in both countries have done a poor job of representing the interests of the excluded sectors of society and massive social protests have driven democratically-elected presidents from office (2000 in Ecuador, 2003 in Bolivia).
Gacitúa Marió, Estanislao and Michael Woolcock, with Marisa von Bulow. 2005
Assessing Social Exclusion and Mobility in Brazil.
In 2001, the World Bank updated a previous poverty assessment of Brazil that analyzed the relationship between income variables and household characteristics. The report provided an updated poverty profile, analyzed the impact of public social spending on poverty, and reviewed the effectiveness of selected policy interventions in order to provide suggestions for the development of a national poverty reduction strategy. The report identified that further work was needed to assess issues related to inequality, opportunity and social exclusion.
Previous research on poverty and inequality in Brazil has focused on the extent to which various factors (labor markets, human capital, prejudice, location, etc.) contribute to poverty and inequality. Little attention, however, has been given to social exclusion processes to explain why certain groups do not have equal access to resources (economic, cultural and political) and/or do not have the same opportunities as other groups to improve their living standards. Similarly, very little is known about the perception Brazilians have of inequality, and which factors or individual characteristics are seen as determinants of income inequalities and social mobility.
Moncrieffe, Joy M. 2004.
Beyond Categories: Power, Recognition and the Conditions for Equity.
The World Development Report (WDR) 2006 will reflect some important shifts in popular thinking about the relationship between inequality, growth and poverty. First, it will refute the Kuznetsian position that inequality has an invariably positive role and will, instead, assert that high levels of inequality can curtail the potential poverty-reducing impact of growth; conversely, where there is low or falling inequality, lower income groups will have a larger share of any increase in national income.
Second, ...the WDR will stress the importance of equity, arguing that poverty reflects deprivation in income and consumption, as well as in capabilities, such as health, education and civil liberties. It will maintain that individuals have differing levels of advantage, which, in addition to income, could be understood as their capability and freedom to make choices, and to convert their incomes into well-being—by establishing personal goals and having realistic means of attaining them. Therefore, it will attempt to define those policies and institutional arrangements that will supply the assets— political, social and economic—and opportunities that people in poverty need to transform their lives.
Third, the report will draw on the ‘horizontal inequality’ thesis and ... will expand its focus beyond individual preferences. Accordingly, the report will analyze how poverty and inequality affect different categories of people, recognizing that disparities—perceived and real—are among the fundamental causes of conflict, which often culminates in low growth. Fourth, the report will emphasize the importance of political ‘agency’. Political agency is especially concerned with actions and interventions that are directed at making claims on the state...
Ross, Michael. 2004.
Mineral Wealth and Equitable Development.
In theory, new mineral wealth should offer governments a chance to boost economic growth and reduce inequality. In practice, it often leads to economic stagnation, civil conflict, and heightened inequality. To avoid these problems, governments must navigate a complex series of economic, social, and political challenges. One of the most difficult challenges is deciding how to deal equitably with the regional or local communities where the extraction occurs. Both the central government and local communities typically claim ownership of the resources, dispute the other side’s claims, and have some ability to slow or block projects they dislike. Mineral firms are often caught between the two sides. When these disputes can be resolved, mineral development can proceed; when they cannot – as in Bolivia, Sudan, Indonesia, and Papua New Guinea – the result may be political unrest and violent conflict.
Sabates-Wheeler, Rachel. 2005
Asset Inequality and Agricultural Growth: How Are Patterns of Asset Inequality Established and Reproduced?
The purpose of this study is to explore the relationship between distributions of asset inequality, how these distributions are created and maintained, and agricultural growth. We intend to investigate what policies and institutions tend to promote equally shared growth. The motivating question that guides our study is: How does differential access to productive assets in the agricultural sector, at various levels (regional, community and household), effect inequalities in agricultural outcomes in terms of productivity and poverty? The dominant discourse on agricultural productivity and distribution has been largely technocratic, focusing on input-output relationships, defined and measured with a yardstick specific to the discipline of economics. We review certain strands of this literature in depth. A less well-known strand of literature emphasises the social and political constructions and reproductions of a variety of inequalities. While this is a relatively small literature we use it to broaden our understanding of the processes and institutions that link inequality and productivity. Furthermore, we use Ethiopian agriculture as a case study to highlight the persistent nature of inequality as causally related to historical choices and path dependency. Rather than unidirectional causalities, what we observe is a complex system whereby inequality affects growth which in turn reinforces processes that exacerbate and reproduce inequalities.
Shepherd, Andrew and E. Gyimah-Boadi, with Sulley Gariba, Sophie Plagerson and Abdul Wahab Musa. 2004
Bridging the North South Divide in Ghana.
Regional inequality is significant: average per capita incomes are 2-4 times lower than elsewhere in the country, and, while inter-regional income inequality accounts for only about 1/5 of total inequality in Ghana, it increased during the 1990s, and it could be anticipated that this trend will have continued into the new millennium. The incidence of poverty fell little in the north (and the average depth of poverty increased), while it fell moderately in much (but not all) of the south during the 1990s. Part of the reason may be the north’s dependence on ‘ food crop farming’, an occupation which did not benefit from the liberalised economy of the 1980s and 1990s. There have been disproportionately few investment projects in the northern regions in the early part of this decade, confirming the likelihood that there will be little growth-induced reduction of north-south inequality or poverty in the north.

Selected World Development Indicators (various years)

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