Economic Growth and Income Distribution: Linking Macroeconomic Models with Household Survey Data at the Global Level

This paper details the methodology for generating a counter-factual within-country distribution of income in the GIDD framework. GIDD stands for Global Income Distribution Dynamics and, as the words imply, it consists of a global microsimulation framework. The GIDD’s framework is based on ex-ante microsimulation methodologies developed in the recent literature, including Bourguignon and Pereira da Silva (2003); Ferreira and Leite (2003, 2004); Chen and Ravallion (2003); and Bussolo, Lay, and van der Mensbrugghe (2005). The objective of the exercise is to create a hypothetical income distribution capturing three major changes in the structure of the population and the economy: (a) change in the age and skill composition of the population, (b) change in the allocation of workers across sectors in the economy, and (c) change in returns to labor by skill and occupation. Our analysis uses country-specific data at the micro level (household surveys) to simulate the impact of the three adjustments. Although in reality these changes take place simultaneously, in our simplified framework they are accommodated in a sequential fashion. This paper explains in some detail the steps of the microsimulation model.