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Increasing inequality in transition economies: is there more to come?


Mitra, Pradeep & Yemtsov, Ruslan (2006). Increasing inequality in transition economies: is there more to come?.. Bourguignon, Fran├žois & Pleskovic, Boris (Eds.) (pp. 59-102). Washington, DC: World Bank.


Inequality has generally been increasing in the transition economies of Eastern Europe and the former Soviet Union but, as predicted by a number of theoretical models, the increase differed substantially across countries. This paper decomposes changes in inequality both by income source and socioeconomic group, with a view to understanding the determinants of inequality and assessing hout it might evolve in the future. The empirical analysis relies on a set of comparable inequality statistics put together for the recent World Bank study, Growth, Poverty and Inequality in Eastern Europe and the Former Soviet Union: 1998-2003 (World Bank 2005b).
The paper argues that further evolution of inequality in Eastern Europe and the former Soviet Union will depend on various factors. Some of these factors relate to transition, such as the evolution of the education premium; a bias in the investment climate against new private sector firms, leading to an excessive dispersion of labor market outcomes; and regional impediments to mobility of goods and labor. But other factors are increasingly important, such as technological change and globalization. The paper also contrasts key features of inequality in Russia with trends in inequality observed in China, where rapid economic growth has been accompanied by a steep increase in inequality. It argues that China's experience is largely a developmental phenomenon rather than a transition-related one, deriving from the rural-urban divide; thus it is of limited relevane for predicting changes in inequality in Russia.


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Mitra, Pradeep
Yemtsov, Ruslan