Structural Change and Income Distribution in Developing Economies: Evidence from a Group of Asian and Latin American Countries

In this paper we address the broad question, how does the process of industrial transformation, affect personal income distribution within a developing economy ? The starting point of our analysis is Kuznets (1955). What clearly emerges from Kuznets’s writings is that under certain circumstances, the process of industrialisation would have very clear-cut implications for changes in the distribution of income within the economy. In the first part of this paper we present our basic arguments regarding the relation between the process of structural change and the overall (personal) distribution of income within a developing economy. Thereafter we examine the evidence from a group of eighteen developing countries from Asia and Latin America as we try to ascertain the nature of empirical support for our hypothesis regarding the relation between structural change and income inequality. We find little support in the data for the Kuznetsian hypothesis of increasing inequality with the industrial transformation of a developing economy. Rather, an important point that emerges from our analysis is that the existence of an informal sector plays an important role in determining how inter-sectoral labour movements affect the overall distribution of income in the context of developing economies.