Working Paper
The developer’s dilemma

A survey of structural transformation and inequality dynamics

This paper discusses the ‘developer’s dilemma’—a tension emerging from the fact that developing countries are simultaneously seeking structural transformation and broad-based growth to raise incomes of the poor.

Simon Kuznets originally hypothesized that structural transformation may have a tendency—in the absence of policy intervention—to put upward pressure on income inequality. However, broad-based economic growth requires steady or even falling income inequality to maximize the growth of incomes at the lower end of the distribution.

The purpose of our paper is:
(i) to revisit the seminal Kuznets paper in order to understand how Kuznets understood the structural transformation and income inequality relationship precisely;
(ii) to discuss the empirical experience of the developing world in terms of structural transformation and, in doing so, to outline a typology of ‘varieties’ of structural transformation;
and (iii) to discuss the structural transformation–inequality relationship and how it may differ under different patterns of structural transformation.