Publication: Increasing Inequality in Transition Economies : Is There More to Come?
Loading...
Published
2006-09
ISSN
Date
2012-06-26
Author(s)
Mitra, Pradeep
Editor(s)
Abstract
This paper decomposes changes in inequality, which has in general been increasing in the transition economies of Eastern Europe and the former Soviet Union, both by income source and socio-economic group, with a view to understanding the determinants of inequality and assessing how it might evolve in the future. The empirical analysis relies on a set of inequality statistics that, unlike "official data", are consistent and comparable across countries and are based on primary records from household surveys recently put together for the World Bank study "Growth, Poverty and Inequality in Eastern Europe and the Former Soviet Union: 1998-2003" [World Bank (2005b)]. The increase in inequality in transition, as predicted by a number of theoretical models, in practice differed substantially across countries, with the size and speed of its evolution depending on the relative importance of its key determinants, viz., changes in the wage distribution, employment, entrepreneurial incomes and social safety nets. Its evolution was also influenced by policy. This diversity of outcomes is exemplified on the one hand for Central Europe by Poland, where the increase in inequality has been steady but gradual and reflects, inter alia, larger changes in employment and compensating adjustments in social safety nets and, on the other for the Commonwealth of Independent States by Russia, where an explosive overshooting of inequality peaked in the mid-1990s before being moderated through the extinguishing of wage arrears during its post-1998 recovery. The paper argues that the process of transition to a market economy is not complete and that further evolution of inequality will depend both on (i) transition-related factors, such as the evolution of the education premium, a bias in the investment climate against new private sector firms which are important vehicles of job creation and regional impediments to mobility of goods and labor, as well as increasingly (ii) other factors, such as technological change and globalization. The paper also contrasts key features of inequality in Russia in the context of other transition economies with trends in inequality observed in China where rapid economic growth has been accompanied by a steep increase in inequality. It argues that the latter's experience is, to a large extent, a developmental, rather than a transition-related phenomenon deriving from the rural-urban divide and is, therefore, of limited relevance for predicting changes in inequality in Russia.
Link to Data Set
Citation
“Mitra, Pradeep; Yemtsov, Ruslan. 2006. Increasing Inequality in Transition Economies : Is There More to Come?. Policy Research Working Paper; No. 4007. © World Bank. http://hdl.handle.net/10986/9269 License: CC BY 3.0 IGO.”
Digital Object Identifier
Associated URLs
Associated content
Other publications in this report series
Publication Climate and Social Sustainability in Fragility, Conflict, and Violence Contexts(Washington, DC: World Bank, 2026-01-07)Climate change is widely recognized as a driver of violent conflict, but its broader social effects remain less understood. Ignoring these dimensions risks a vicious cycle where climate policies might undermine socially just adaptation. Evidence is still limited on how climate shocks influence political participation, trust, or migration. This paper helps fill that gap by examining links between climate change, conflict, and social sustainability, with a focus on inclusion, resilience, cohesion, and legitimacy. Using secondary data from 2019–24, the study applies simple correlation-based methods to test three hypotheses on the nature, severity, and composition of these associations. The analysis combines multiple climate impact measures, new conflict classifications, recent social sustainability frameworks, and controls for population and geography. The results reveal strong correlations—not causation—between climate events and contexts of fragility, conflict, and violence. Climate impacts are most pronounced in both national and subnational conflict settings. The study also finds robust links between fragility, conflict, and violence and low levels of social sustainability, reflecting its role as both a driver and consequence of conflict. Some dimensions—such as violent events and insecurity—appear weaker in areas most affected by climate shocks. Two of the hypotheses are supported, and one remains inconclusive.Publication The Macroeconomic Implications of Climate Change Impacts and Adaptation Options(Washington, DC: World Bank, 2025-05-29)Estimating the macroeconomic implications of climate change impacts and adaptation options is a topic of intense research. This paper presents a framework in the World Bank's macrostructural model to assess climate-related damages. This approach has been used in many Country Climate and Development Reports, a World Bank diagnostic that identifies priorities to ensure continued development in spite of climate change and climate policy objectives. The methodology captures a set of impact channels through which climate change affects the economy by (1) connecting a set of biophysical models to the macroeconomic model and (2) exploring a set of development and climate scenarios. The paper summarizes the results for five countries, highlighting the sources and magnitudes of their vulnerability --- with estimated gross domestic product losses in 2050 exceeding 10 percent of gross domestic product in some countries and scenarios, although only a small set of impact channels is included. The paper also presents estimates of the macroeconomic gains from sector-level adaptation interventions, considering their upfront costs and avoided climate impacts and finding significant net gross domestic product gains from adaptation opportunities identified in the Country Climate and Development Reports. Finally, the paper discusses the limits of current modeling approaches, and their complementarity with empirical approaches based on historical data series. The integrated modeling approach proposed in this paper can inform policymakers as they make proactive decisions on climate change adaptation and resilience.Publication Institutional Capacity for Policy Implementation: An Analytical Framework(Washington, DC: World Bank, 2026-01-07)State capacity is an important prerequisite for policy implementation, yet at the country level it is difficult to measure, assess, and reform. This paper proposes a focus on institutional capacity: the ability of public institutions to implement the specific policy mandates for which they are responsible. Based on a review of existing literature, the paper defines the different dimensions that compose institutional capacity and groups them into two cross-cutting categories: organizational dimensions (personnel, financial resources, information systems, and management practices) and governance dimensions (transparency, independence, and accountability). The paper proposes measures for organizational and governance dimensions using existing data, shows intra-institutional variation of these measures within countries, and discusses how new data could be collected for better measurement of these concepts. Finally, the paper illustrates how the framework can be used to diagnose the sources of common problems related to weak policy implementation.Publication South Africa’s Fragmented Cities: The Unequal Burden of Labor Market Frictions(Washington, DC: World Bank, 2026-01-08)Using high-resolution administrative, census, and satellite data, this paper shows that South African cities are characterized by spatial mismatches between where people live and where jobs are located, relative to 20 global peers. Areas within 5 kilometers of commercial centers have 9,300 fewer residents per square kilometer than expected, which is 60 percent below the global median. Poor, dense neighborhoods are most affected. In Johannesburg, a 10-percentile increase in distance from the nearest business hub corresponds to a 3.7-percentile drop in asset wealth (a proxy of household wellbeing) and 4.9-percentile drop in employment. In Cape Town, the declines are 4.0 and 3.7 percentiles, respectively. Employment is 87 percent lower in the poorest decile than the richest in Johannesburg and 61 percent lower in Cape Town. These findings suggest that South Africa’s spatial organization of people and economic activity constrains agglomeration and reinforces inequality. This methodology provides a scalable and standardized data-driven framework to analyze spatial accessibility and agglomeration frictions in complex, data-constrained urban systems.Publication Investment in Emerging and Developing Economies(Washington, DC: World Bank, 2026-01-07)The world faces a pressing challenge to meet key development objectives amid slowing growth and rising macroeconomic and geopolitical risks. With the number of job seekers rising rapidly, infrastructure shortfalls continuing to be large, and climate costs mounting, the case for a significant investment push has never been stronger. Yet the capacity to respond in many emerging markets and developing economies has eroded. Since the global financial crisis, investment growth has slowed to about half its pace in the 2000s, with both public and private investment weakening. Foreign direct investment inflows—a critical source of capital, technology, and managerial know-how—have also fallen sharply and become increasingly concentrated, leaving low-income countries with only a marginal share. The risks of further retrenchment are significant, as trade tensions, policy uncertainty, and elevated debt levels continue to weigh on investment. Reigniting momentum will require ambitious domestic reforms to strengthen institutions, rebuild macro-fiscal stability, and deepen trade and investment integration—the foundations of a supportive business climate. At the same time, international cooperation is indispensable. A renewed commitment to a predictable system of cross-border trade and investment flows, combined with scaled-up financial support and sustained technical assistance, is essential to help emerging markets and developing economies—especially low-income countries and economies in fragile and conflict situations—bridge financing gaps and implement the domestic reforms needed to restore investment as an engine of growth, jobs, and development.
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Reform and Inequality During the Transition : An Analysis Using Panel Household Survey Data, 1990-2005(World Bank, Washington, DC, 2008-11)Using for the first time household survey data from 26 post-Communist countries, covering the period 1990-2005, this paper examines correlates of unprecedented increases in inequality registered by most of the economies. The analysis shows, after controlling for country fixed effects and type of survey used, that economic reform is strongly negatively associated with the income share of the bottom decile, and positively with the income shares of the top two deciles. However, breaking economic reform into its component parts, the picture is more nuanced. Large-scale privatization and infrastructure reform (mostly consisting of privatization and higher fees) are responsible for the pro-inequality effect; small-scale privatization tends to raise the income shares of the bottom deciles. Acceleration in growth is also pro-rich. But democratization is strongly pro-poor, as is lower inflation. Somewhat surprisingly, the analysis finds no evidence that greater government spending as share of gross domestic income reduces inequality.Publication Global Growth and Distribution : Are China and India Reshaping the World?(World Bank, Washington, DC, 2007-11)Over the past 20 years, aggregate measures of global inequality have changed little even if significant structural changes have been observed. High growth rates of China and India lifted millions out of poverty, while the stagnation in many African countries caused them to fall behind. Using the World Bank's LINKAGE global general equilibrium model and the newly developed Global Income Distribution Dynamics (GIDD) tool, this paper assesses the distribution and poverty effects of a scenario where these trends continue in the future. Even by anticipating a deceleration, growth in China and India is a key force behind the expected convergence of per-capita incomes at the global level. Millions of Chinese and Indian consumers will enter into a rapidly emerging global middle class-a group of people who can afford, and demand access to, the standards of living previously reserved mainly for the residents of developed countries. Notwithstanding these positive developments, fast growth is often characterized by high urbanization and growing demand for skills, both of which result in widening of income distribution within countries. These opposing distributional effects highlight the importance of analyzing global disparities by taking into account - as the GIDD does - income dynamics between and within countries.Publication Dynamics of Income Inequality and Welfare in Latvia in the Late 1990s(World Bank, Washington, D.C., 2004-06)This paper analyzes the dynamics of poverty and income inequality during the recovery phase of the transition that characterized the Republic of Latvia in the late 1990s. Despite a continued rise in income inequality, empirical evidence suggests an improvement in living standards, owing largely to a significant surge in per capita income growth, particularly in urban areas. In a context of rising income inequality and widening urban-rural income and poverty gaps, the benefits of growth were not equally distributed, and poverty persisted in a number of regions (particularly the regions of Latgale and Vitzeme) and among some socioeconomic groups (particularly households deriving their main income from social benefits). In addition to income inequality and asset endowments, poverty appears to be highly correlated with a number of labor market-related variables, particularly unemployment, suggesting that the labor market could be an important transmission channel from growth to poverty. However, though positive, the association between poverty and unemployment is non linear, especially in urban areas, where the labor market and demand are the most important channels of transmission through which growth and macroeconomic development affect household income and living standards.Publication Africa's Pulse, October 2013 : An Analysis of Issues Shaping Africa's Economic Future(Washington, DC, 2013-10)This Africa's pulse newsletter includes the following headings: economic prospects for Sub-Saharan Africa remain strong, but growth is vulnerable to a sharp decline in commodity prices; the region's progress on reducing poverty has been slow, hindered by high inequality; and faster reduction in poverty will require growth with equity.Publication Pathways to the Middle Class in Turkey : How Have Reducing Poverty and Boosting Shared Prosperity Helped?(World Bank, Washington, DC, 2014-04)Turkey's poverty reduction performance in the 2000s has been remarkably consistent. Extreme and moderate poverty have fallen considerably since 2003. Between 2002 and 2011, extreme poverty fell from 13 percent to 5 percent, while moderate poverty halved from 44 percent to 22 percent (respectively, defined using the World Bank's Europe and Central Asia regional poverty lines of 2.5 and 5 USD/PPP). Most of this poverty reduction (89 percent) has been driven by growth, a performance consistent with most countries in Europe and Central Asia. This is substantially different form the recent performance of other regions, such as Latin America, where redistribution contributed to poverty reduction almost four times more than in Turkey. Turkey has also achieved sustained consumption growth of the bottom 40 percent of the population, even during the years of the world recession. Turkey's performance in poverty reduction and increased shared prosperity has been complemented by the systematic expansion of the middle class by 20 percentage points. This paper analyzes the main drivers of poverty reduction, shared prosperity, and changes in inequality in Turkey from 2002 to 2011. The analysis shows that labor markets, demographics, pensions, and social assistance have played a critical role in this process. It further explores some of the mechanisms that have facilitated these changes.
Users also downloaded
Showing related downloaded files
Publication Human Resources for Mental Health Service Delivery in Viet Nam(Washington, DC: World Bank, 2024-05-30)"Human Resources for Mental Health Service Delivery in Viet Nam" provides an overview of the country’s current state of and challenges to mental health service delivery. The framework of the report is composed of four interconnected domains: health care, social services, education and mental health literacy, and informal care systems. The organizational structure, significant achievements, critical gaps, and problems in mental health service delivery at the institutional and community levels are highlighted in terms of public demand, availability, accessibility, and quality of service. The report uses new empirical data from surveys, workshops, and group discussions with key stakeholders. It describes the mental health workforce in Viet Nam and analyzes critical issues, including the shortage of professionals (psychiatrists, mental health nurses, psychologists, psychotherapists, social workers, occupational therapists, and others). Given the need to develop all levels of mental health care, the report addresses the uneven distribution of the provision of service between levels of health care institutions and rural and urban regions, competency mismatches, job satisfaction, recruitment, and challenges to the retention of mental health workers. The report also examines the need for mental health education and training at the institutional and structured program levels, as well as the supply constraints to the future development of the mental health workforce. The interdisciplinary team of authors emphasizes the urgent need for Viet Nam to strengthen its human resources for mental health service delivery toward achieving universal health coverage, including all mental disorders. The report’s evidence-based recommendations include multisectoral workforce planning; transformation of education and training; coordination, integration, and retention of the available workforce; improvement of the workforce governance framework; and strengthened mental health financing.Publication Digital Africa(Washington, DC: World Bank, 2023-03-13)All African countries need better and more jobs for their growing populations. "Digital Africa: Technological Transformation for Jobs" shows that broader use of productivity-enhancing, digital technologies by enterprises and households is imperative to generate such jobs, including for lower-skilled people. At the same time, it can support not only countries’ short-term objective of postpandemic economic recovery but also their vision of economic transformation with more inclusive growth. These outcomes are not automatic, however. Mobile internet availability has increased throughout the continent in recent years, but Africa’s uptake gap is the highest in the world. Areas with at least 3G mobile internet service now cover 84 percent of Africa’s population, but only 22 percent uses such services. And the average African business lags in the use of smartphones and computers as well as more sophisticated digital technologies that catalyze further productivity gains. Two issues explain the usage gap: affordability of these new technologies and willingness to use them. For the 40 percent of Africans below the extreme poverty line, mobile data plans alone would cost one-third of their incomes—in addition to the price of access devices, apps, and electricity. Data plans for small- and medium-size businesses are also more expensive than in other regions. Moreover, shortcomings in the quality of internet services—and in the supply of attractive, skills-appropriate apps that promote entrepreneurship and raise earnings—dampen people’s willingness to use them. For those countries already using these technologies, the development payoffs are significant. New empirical studies for this report add to the rapidly growing evidence that mobile internet availability directly raises enterprise productivity, increases jobs, and reduces poverty throughout Africa. To realize these and other benefits more widely, Africa’s countries must implement complementary and mutually reinforcing policies to strengthen both consumers’ ability to pay and willingness to use digital technologies. These interventions must prioritize productive use to generate large numbers of inclusive jobs in a region poised to benefit from a massive, youthful workforce—one projected to become the world’s largest by the end of this century.Publication Indonesia Economic Prospects, June 2025(Washington, DC: World Bank, 2025-06-23)Indonesia’s economy remains resilient amid worsening global conditions. GDP grew at 4.9 percent year-on-year (yoy) in Q1-2025, slightly lower than previous post-pandemic quarters. Domestic demand was impacted by reduced government consumption and lower investment. Budget efficiency measures led to a contraction in public consumption, while investment in the construction and manufacturing sectors dipped due to investors’ concerns over domestic and global policy uncertainty. Meanwhile, declining commodity prices worsened Indonesia’s terms of trade. The supply side showed notable contributions from the agriculture and services sectors. Businesses and households are adjusting to economic uncertainty, but weak consumption of middle-class households has been persistent since the pandemic. The GOI structural reform agenda could accelerate growth further. In response to rising global policy uncertainty, the GOI devised a program of deregulation including reforms to the business environment and licensing, investment liberalization, trade and logistics reforms, and digital services. These reforms complement other reforms currently in play, like those related to financial sector deepening, and accompany the demand stimulus that the GOI is targeting through its priority programs. If implemented, these reforms could gradually expand the economy’s capacity, unlock further FDI, boost investment returns, and ensure productivity gains. The report suggests that this will translate into better job creation and raise GDP growth to 5.3-5.5 percent in 2026-2027. This report identifies the necessary steps to reach the target of providing 3 million housing units each year. In short, to meet the housing target and supercharge current efforts, the government needs to act as both a housing provider and a housing facilitator: instituting housing regulation reforms, accelerating public-funded housing programs, and creating an enabling environment that attracts private investment in Indonesia. Directly, 3.8 billion dollars in annual public investments can create an estimated 2.3 million jobs and mobilize 2.8 billion dollars in private capital. Reforms can create an enabling environment for housing investments and indirectly help multiply this impact.Publication Croatia : Diagnostic Review of Consumer Protection and Financial Literacy, Volume 1. Key Findings and Recommendations(Washington, DC, 2010-02)As financial markets develop and deepen, one of the key issues for a fair, open and efficient market is effective consumer protection and financial literacy. The European Union takes the approach that an effective regime of financial consumer protection should allow consumers to have access to: sufficient information to make informed decisions about their financial choices; cost-effective recourse mechanisms to redress violations of financial service contracts; and programs of consumer education and financial literacy that empower them to understand their financial rights and obligations. This review has found that the quality of consumer protection in financial services in Croatia has improved in recent years. In particular, the approval of the 2007 Consumer Protection Act incorporated many of the EU Directives related to financial consumer protection. In addition, the National Council on Consumer Protection was established in 2008 to advise the Government on its national strategy for consumer protection in the coming years. A nation-wide baseline survey of financial literacy would provide useful information in designing programs in financial education and consumer awareness. As pioneered in the United Kingdom, financial literacy surveys can identify which part of the population is most vulnerable to financial abuse. The baseline survey should be segmented by age, gender, geographic area, household income, and formal education. After a period of three to five years, a follow-up survey could be done to evaluate the effectiveness of the programs of financial education and consumer awareness.Publication Economy Profile of Bhutan(World Bank, Washington, DC, 2017-11-01)Doing Business 2018 is the 15th in a series of annual reports investigating the regulations that enhance business activity and those that constrain it. This economy profile presents the Doing Business indicators for Bhutan. Doing Business presents quantitative indicators on business regulation and the protection of property rights that can be compared across 190 economies; for 2018 Bhutan ranks 75. Doing Business measures aspects of regulation affecting 11 areas of the life of a business. Ten of these areas are included in this year’s ranking on the ease of doing business: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. Doing Business also measures features of labor market regulation, which is not included in this year’s ranking. Data in Doing Business 2018 are current as of June 1, 2017. The indicators are used to analyze economic outcomes and identify what reforms of business regulation have worked, where and why.