Table Of ContentPopulation Economics
Editorial Board
John Ermisch
Bengt-Arne Wickstrom
Klaus F. Zimmermann
Titels in the Series
Jacques J. Siegers . Jenny de Jong-Gierveld
Evert van Imhoff (Eds.)
Female Labour Market Behaviour and Fertility
Hendrik P. van Dalen
Economic Policy in a Demographically Divided Wo rId
Dieter BUs' Sijbren Cnossen (Eds.)
Fiscal Implications of an Aging Population
Klaus F. Zimmermann (Ed.)
Migration and Economic Development
Nico Heerink
Population Growth,
Income Distribution,
and
Economic Development
Theory, Methodology,
and Empirical Results
With 22 Figures
Springer-Verlag
Berlin Heidelberg New York London Paris Tokyo
Hong Kong Barcelona Budapest
Dr. Nico Heerink
Wageningen Agricultural University
Department of Development Economics
P.O.Box 8130
NL-6700 EW Wageningen
The Netherlands
ISBN-13: 978-3-642-78573-3 e-ISBN-13: 978-3-642-78571-9
DOl: 10.1007/978-3-642-78571-9
This work is subject to copyright. All rights are reserved, whether the whole or part oft he mate
rial is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recita
tion, broadcasting, reproduction on microfilms or in other ways, and storage in data banks. Du
plication ofthis publication or parts thereofis only permitted under the provisions ofthe Ger
man Copyright Law of September 9, 1965, in its version of June 24, 1985, and a copyright fee
must always be paid. Violations fall under the prosecution act of the German Copyright Law.
© Springer-Verlag Berlin· Heidelberg 1994
Softcover reprint of the hardcover I st edition 1994
The use of registered names, trademarks, etc. in this publication does not imply, even in the ab
sence of a specific statement, that such names are exempt from the relevant protective laws and
regulations and therefore free for general use.
4217130-543210 -Printed on acid-free paper
Preface
This book is the outcome of research carried out since 1983 at the University
of Groningen (The Netherlands), the European University Institute (EUI) in
Florence (Italy) and Wageningen Agricultural University (The Netherlands).
Thanks are due to the Netherlands Ministry of Education and Science for fi
nancing my three-years stay at the EUI in Florence, the Foundation for the
Promotion of Research in the Economic Sciences (ECOZOEK) which is part of the
Netherlands Organization for the Advancement of Research (NWO) for financing
part of the research carried out in Groningen, and the Departments of Demogra
phy and Econometrics at the University of Groningen and the Department of
Development Economics at Wageningen Agricultural University for giving me the
opportunity to continue and finish the research.
Throughout the entire research, the comments and stimulative ideas provided
by Caspar Schweigman (University of Groningen), Henk Folmer (University of
Groningen and Wageningen Agricultural University) and Harrie van Vianen (Uni
versity of Groningen) have been a great support to me. I appreciated very much
their positive attitudes and their dedication and endurance.
In addition, the research has benefitted from comments made by Kumaraswamy
Velupillai and Pierre Dehez (European University Institute, Florence) and by
various staff members of the Institute of Econometrics in Groningen. Drafts of
the book have been rigourously reviewed by John Micklewright and Robert Wald
mann of the EUI in Florence. I gratefully acknowledge the contributions of all
these persons. All remaining errors are of course entirely my own responsibil
ity. Furthermore, I am much indebted to Piet Holleman for his skilful help in
drawing some of the graphs.
A special word of thanks is due to Colette, Fiona and Edo for their patience
and endurance in coping with all my moods during these years. From now on, I
will have to look for another excuse, I guess.
Nico Heerink
Contents
Preface v
1 Introduction 1
1.1 Purpose of the study 1
1.2 Previous research on the subject 3
1.3 Approach of the present study 6
1.4 Outline of the study 9
1.5 Composition of the sample 12
1.6 Data and data quality 14
PART I: METHODOLOGICAL ISSUES
2 Inequality measures in macro-analyses 23
2.1 Introduction 23
2.2 Aggregation of nonlinear micro-relationships and measures of
inequality 24
2.2.1 Introduction 24
2.2.2 Alternative formulations of the nonlinearity bias 25
2.2.3 The nonlinearity bias and basic properties of inequality
measures 29
2.2.4 The nonlinearity bias and auxiliary properties of
inequality measures 32
2.2.5 The nonlinearity bias for the logarithmic function 37
2.2.6 Aggregation of ratios 40
2.2.7 Summary and conclusions 41
2.3 Application to income distributions 43
2.3.1 Introduction 43
2.3.2 Relationship of the nonlinearity bias to social welfare
functions 44
2.3.3 Estimation from grouped data: I 48
2.3.4 Estimation from grouped data: II 56
2.3.5 Summary 59
2.4 Conclusion 61
3 Cross-national regression analysis 65
3.1 Introduction 65
3.2 Interpretation of the estimates 66
3.2.1 Introduction 66
3.2.2 Impact of omitted lagged variables 68
3.2.3 Impact of the omission of other explanatory variables 81
3.2.4 Summary and conclusions 84
3.3 Econometric problems 86
3.3.1 Introduction 86
3.3.2 Heteroscedasticity 88
3.3.3 Multicollinearity 93
3.3.4 Errors in the variables 97
3.3.5 Summary 101
3.4 Conclusion 103
PART II: PARTIAL STUDIES
4 Fertility 111
4.1 Introduction 111
4.2 Review of the literature on the impact of income inequality 111
4.3 Impact of household income on fertility 114
4.3.1 Proximate determinants of fertility 114
VIII
4.3.2 Easterlin's synthesis framework 116
4.3.3 Direct impact of income on intervening variables 119
4.3.4 Indirect impact of income on intervening variables 121
4.3.5 Shape of the income-fertility relationship 125
4.3.6 Conclusions 126
4.4 Macro-level evidence on the shape of the income-fertility
relationship 127
4.5 Regression results 129
4.6 Summary 137
5 Mortality 140
5.1 Introduction 140
5.2 Review of the literature on the impact of income inequality 140
5.3 Impact of household income on mortality 142
5.3.1 Causes of death and proximate determinants of mortality 142
5.3.2 Impact of household income on proximate determinants 146
5.3.3 Shape of the income-mortality relationship 149
5.3.4 Conclusions 150
5.4 Macro-level evidence on the shape of the income-mortality
relationship 151
5.5 Regression results 154
5.6 Summary 159
6 Age structure of the population 161
6.1 Introduction 161
6.2 Demographic relationships in cross-national regression analyses 161
6.3 Long-term impact of fertility and mortality on the age structure 163
6.4 Regression results 167
6.5 Summary and conclusions 173
7 Income (in)equa1ity 176
7.1 Introduction 176
7.2 Review of the literature on demographic determinants 177
7.3 Equality of personal incomes 178
7.3.1 Age-income profiles 178
7.3.2 Age and the equality of personal incomes 182
7.3.3 Numerical assesments of the age effect 186
7.3.4 Gender and the equality of personal incomes 189
7.3.5 Conclusions 193
7.4 Equality of household incomes 194
7.4.1 Household size and the equality of household incomes 194
7.4.2 Numerical assesments of the household size effect 199
7.4.3 Age and gender and the equality of household incomes 202
7.4.4 Conclusions 205
7.5 Regression results 206
7.6 Summary 213
8 Total income 217
8.1 Introduction 217
8.2 Properties of the Cobb-Douglas production function 218
8.3 Some non-conventional sources of growth 223
8.4 Regression results 225
8.5 Summary 232
9 Basic needs fulfilment 235
9.1 Introduction 235
9.2 Review of the literature on the impact of income inequality 235
9.3 Impact of household income on basic needs fulfilment 237
9.4 Regression results 240
9.5 Summary 249
IX
10 Labour force participation 252
10.1 Introduction 252
10.2 Impact of income (in)equa1ity 253
10.2.1 Review of the literature 253
10.2.2 Impact of household income on labour force participation 254
10.2.3 Macro-level evidence on the shape of the income-labour
force participation relationship 258
10.2.4 Conclusion 260
10.3 Impact of population age and sex structure 261
10.4 Regression results 263
10.5 Summary 276
11 Consumption and saving 280
11.1 Introduction 280
11.2 Impact of income (in)equa1ity 280
11.2.1 Impact of household income on consumption 280
11.2.2 Implications for relationship betweeen income equality
and consumption 286
11.2.3 Review of empirical studies 288
11.3 Impact of population age and sex structure 291
11.3.1 Savings and the dependency ratio 291
11.3.2 Consumption and equivalence scales 294
11.3.3 An integration 296
11.4 Regression results 300
11.5 Summary 309
12 Other dependent variables in the model 313
12.1 Introduction 313
12.2 Inequality of land holdings 314
12.3 Average household size 320
12.4 Share of labour force in agriculture 322
12.5 Population per physician 324
12.6 Summary 326
PART III: THE SIMULTANEOUS-EQUATIONS MODEL
13 Model specification and regression results 331
13.1 Introduction 331
13.2 Specification of the model 331
13.2.1 Structural equations 331
13.2.2 Identities 339
13.2.3 Properties of the model 342
13.3 Regression results 343
13.4 Conclusion 356
14 Summary 361
Appendix A: Data sources 371
Appendix B: The entire model 380
Bibliography 387
1 Introduction
1.1 Purpose of the study
Population growth and income distribution are two politically sensitive top
ics. Leading politicians have rather divergent opinions on the desirability of
policies aimed at influencing the distribution of incomes and policies
designed to alter the rate of population growth. Decisions on these two top~
ics, whether or not to develop a redistributive program and whether or not to
adopt a population policy, are usually made independently. But recent scienti
fic research indicates that the two topics are related. On the one hand, it
has been argued that a redistribution of income from rich to poor households
will lower the fertility and mortality of a population (see e.g. Repetto 1979,
and Rodgers 1979). And on the other hand, a number of studies have shown that
changes in the age structure of a population (and hence, the rate of popula
tion growth) influence the distribution of incomes (see e.g. Paglin 1975,
Kuznets 1976, and Schultz 1981a).
Despite the growing consensus on the interdependency of population growth
and income distribution, there are two'important questions that remain unre
solved at present. In the first place, the, paths through which income distri
bution and population growth influence each other are still not clear; it
seems likely that the impact is not only direct, but that there are many
indirect impacts as well. These indirect paths run through variables such as
education, female employment, distribution of land holdings, nutrition,
health, and other aspects of (socio-}economic development. In empirical inves
tigations, population growth and income inequality are usually regressed
directly on each other. No attempt is made to model the various indirect
relationships that may exist (see e.g. Winegarden 1978, and Rodgers 1983).
In the second place, the relative strength of the relationships between
population growth and income distribution is a matter in dispute in the liter
ature. In particular, studies that found that income equalizations lead to
lower fertility have been criticized on theoretical as well as methodological
grounds (see e.g. Birdsall 1977, Meesook 1981: pp.17-18, and Boulier 1982, and
reply by Repetto 1982). It is often believed that the relationship runs in the
opposite direction, that is lower fertility leads to a more equal income
distribution.
Ben Porath (1982) concluded from the available literature on income inequal
ity and fertility that the argument is not whether inequality matters, but in
what direction, to what extent, and by what causal mechanisms (Ben Porath
2
1982: p.10). Similar conclusions can be drawn with regard to the relationship
between income inequality and the other component of population growth, mor
tality.
The present study will go into the questions raised by Ben Porath. An at
tempt will be made to unravel the knot of interrelationships between popula
tion growth and income distribution. To this end, a multi-equation, macro
level model will be developed that is meant to represent some of the major
relationships. The unknown parameters of the model will be estimated by means
of econometric methods.
The model concentrates on five 'central' variables, which are considered to
represent important aspects of demographic transition and income distribution.
These variables are: The level of fertility, the level of mortality, the age
and sex structure of a population, the degree of equality in the income
Figure 1.1.1 Scheme of the relationships examined in this study.
8
Age and sex
structure of
and saving
6 6
fulfilment
Labour force
11
participation 5 4
Income
L-____________~ (in)equality
4 5
5
N.B.: The numbers represent the chapters in which the relationship in question
will be examined.
