Savings rates and income distribution: further evidence from LDCs

Abstract

A cross-country test for the existence of Kaldor effects in less developed countries is developed. Earlier attempts have been inconclusive, and have led to a perception that the effect is unimportant. It is argued that previous tests may have ben misspecified. Within a standard life cycle framework, a savings rate function that also incorporates two distribution variables, one involving measures of income inequalities across income classes and the other a broad measure of inequalities among sectors, was specified and estimated. The results indicate that, regardless of the inequality measure employed, some sort of Kaldor effect may be at work. This suggests that the traditional conflect between growth and equity warrants continued investigation.