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Iran, Islamic Republic of

Redistribution and Growth: The MENA Perspective

Elena Ianchovichina's picture

Recently three IMF economists published a paper arguing that redistribution is in general pro-growth (Ostry et al. 2014). The paper caused a stir as it dismisses right-wing beliefs that redistribution hurts growth. However, even people sympathetic to the ideas of inclusive growth and equality of opportunity find this finding problematic. One reason is that the authors rely on a measure of redistribution that misrepresents the true cost of redistribution in an economy. Another has to do with the omission of factors that affect positively the income growth of the poor and vulnerable, such as employment.  This omission would exaggerate the importance of equality through redistribution as a source of growth and underplay the importance of structural transformation and investments directed towards sectors that use unskilled labor more intensively, and therefore have the potential to generate inclusive growth and productive employment for the poor segments of the population.