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Inequality in Middle Income Countries

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This paper is the final synthesis report produced as part of a DFID funded project focusing on the relationships between growth, inequality and poverty reduction in Middle Income Countries (MICs). The project was motivated by the high levels of absolute poverty in many MICs, despite their higher average income levels compared to Low Income Countries (LICs). These high absolute levels of poverty in MICs reflect high levels of inequality, which often has strong horizontal dimensions, in other words high levels of inequality between clearly defined groups, for instance along ethnic, gender or regional lines (or combinations of these).

The development performance of MICs over the next decade will be a very important contributory factor in the chances of meeting the Millennium Development Goals at the global level, especially so as levels of poverty and inequality have been very persistent in many instances. These high levels of inequality are also widely regarded as having adverse effects on growth and social stability, which in turn are key factors enabling more rapid poverty reduction. Finally the performance of MICs can often have strong favourable impacts on neighbouring countries, which in many instances include LICs (e.g. in the case of South Africa).

This project comprised an overall concept paper written by a multidisciplinary team at ODI, and three country case studies of Brazil, China and South Africa which were prepared building on the framework set out in the concept paper. The case study countries thus covered two high inequality MICs with relatively slow growth (Brazil and South Africa), and one rapidly growing country, in which inequality has increased significantly, albeit from an initially low level (China). Each of these papers was presented in a workshop on London on 4-5 December 2003, along with other closely related presentations reflecting a number of other important initiatives in this area at present, notably from key multilateral organisations (Inter American Development Bank, Asian Development Bank, World Bank, European Commission) and researchers working in this area.

The synthesis paper summarise key messages from this project, drawing both on the papers and on the presentations at the workshop.

Andy McKay