Education, Occupation, and Credit: Sources of Kuznets Dynamics in Thailand

The Kuznets curve postulates a dynamic relationship between growth and income inequality for a given economy. These two aggregate phenomena are linked through compositional changes in individual characteristics when self-selection is constrained by personal wealth. This paper attempts to identify the crucial characteristics associated with this dynamic relationship, by studying the evolution of the income distribution in Thailand between 1976 and 1996, during which the economy experienced strong growth with diminution of poverty, but with a rapid increase in income inequality. Applying comprehensive decomposition analyses to the data from the Thai Socio-Economic Survey, this paper shows that growth and income distribution dynamics were closely related to an expansion of education and credit, and to an occupational transformation. These three factors account for 39 percent of the average income growth, 39 to 54 percent of poverty reduction depending on the poverty index, and 53 percent of increase in inequality. Each of these factors contributed to growth by a similar magnitude. However, the expansion of education and credit was concentrated among wealthy households and increased inequality while the transformation of occupation occurred mainly among middle class and reduced poverty. ¤I am grateful for the valuable advice from Francois Bourguignon, Maitreesh Ghatak, Andreas Lehnert, Anna Paulson, and Ashok Rai. In particular, patient support and guidance from Robert M. Townsend was essential to this study. Helpful comments from the members of Theory and Development workshop, and the participants at the NEUDC conference at the Harvard University and the seminar at Center for the Study of African Economies at the University of Oxford are appreciated as well. The ...nancial supports from Korea Foundation for Advanced Studies, Flora and William Hewlett Foundation Predoctoral Fellowship, and Andrew W. Mellon Foundation Doctoral Dissertation Fellowship are gratefully acknowledged. All errors are mine. Corresponding Address : Population Research Center at the University of Chicago, Room #371, 1155 East 60th Street, Chicago IL 60637. E-mail : [email protected]