INEQUALITY AND GROWTH RECONSIDERED - LESSONS FROM EAST-ASIA

East Asian economies have experienced rapid growth over three decades, with relatively low levels of income inequality, and appear to have a lso achieved reductions in income inequality. We argue that policies t hat reduced poverty and income inequality, such as emphasizing high-qu ality basic education and augmenting labor demand, also stimulated gro wth. Closing two virtuous circles, rapid growth and reduced inequality led to higher demand for, and supply of, education. Moreover, low lev els of income inequality may have directly stimulated growth. We prese nt cross-economy regression results that are consistent with a positiv e causal effect of low inequality on economic growth and with low ineq uality of income as an independent contributing factor to East Asia's rapid growth. We conclude that policies for sharing growth can also st imulate growth. In particular, investment in education is a key to sus tained growth, both because it contributes directly through productivi ty effects and because it reduces income inequality.