The Federal Democratic Republic of Ethiopia

Beyond its core focus on macroeconomic and financial policies, the Fund is increasingly concerned with how income inequality affects growth and macroeconomic stability. Over the last decade, many of the countries that have entered a path of fast economic development and reduced poverty simultaneously experienced a rising gap between the rich and poor. As a result, in many of them, including those in sub-Saharan Africa (SSA), income inequality has increased. The relationship between growth and inequality is a complex one, given that the causality may go in both directions, and the effect of inequality on growth may change with a country’s stage of development. A growing body of research indicates the adverse implications of inequality for development and macro stability, arguing that it may lead to political and economic instability, weaken support for economic reforms, and undermine progress in education and health (Persson and Tabellini, 1994; Easterly, 2007; Berg, Ostry and Zettelmeyer, 2012; Ostry et al., 2014). Recent empirical work conducted at the Fund confirms this relationship between rising income inequality and its impact on economic growth (Dabla Norris et al., 2015).