N. Anbarci and M.Ulubasoglu. Journal of International Trade and Economic Development, April 2011, v.20, n. 2, pp. 251-292.
That researchers look for the inverted-U shape in inequality in the arbitrary periods of arbitrary countries underlies the divergent empirical evidence across studies. To point to the right context for the pattern, this paper establishes a formal mechanism in line with Kuznets’ explanation that relates to the industrialization-cum-urbanization phases of closed trade regimes. The mechanism involves an interaction among urban-rural sectoral size differences, agricultural tastes/income, and migration, and predicts an inverted-U shape in inequality in the following way: i) widening differences in the sizes of urban and rural sectors due to exogenous shocks affect negatively the agricultural tastes/income, worsening inequality, ii) increasing sectoral size differences and decreasing agricultural tastes/income jointly foster intersectoral migration, iii) migration acts in turn as an equilibrating effect, improving the income distribution. Empirically testing these predictions, non-Sub-Saharan developing countries’ data support the mechanism, while data from developed and Sub-Saharan African countries provide little support, as per our prior expectations. This highlights a contrasting evidence on the inverted-U shape across country groups of differing development stages.