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Unformatted text preview: What is Middle Class about the Middle Classes around the World? Abhijit V. Banerjee and Esther Duflo W e expect a lot from the middle classes. Jim Frederick, writing in Time magazine in 2002, stated: “China’s burgeoning middle class holds the key to the future of the country.” In a more academic vein, Easterly (2001) concludes, based on a comparison of a large number of countries, that countries that have a larger middle class tend to grow faster, at least if they are not too ethnically diverse. In another article, Birdsall, Graham, and Pettinato (2000) rue the shrinking of the middle class—“the backbone of both the market economy and of democracy in most advanced societies”—in the face of burgeoning global- ization. The economic historian David Landes, writing about The Wealth and Poverty of Nations (1998), explains England’s early ascendancy in terms of “the great English middle class” of the eighteenth and nineteenth centuries. Of course, there is nothing new about this faith in the middle class—it follows a long line of theorizing going back, at least, to Max Weber (1905). At least three distinct arguments are traditionally made. In one, new entrepreneurs armed with a capacity and a tolerance for delayed gratification emerge from the middle class and create employment and productivity growth for the rest of society (for a formalization of this argument, see Acemoglu and Zilibotti, 1997). In a second, perhaps more conventional view, the middle class is primarily a source of vital inputs for the entrepreneurial class: it is their “middle class values”—their emphasis on the accumulation of human capital and savings—that makes them central to the process of capitalist accumulation (for example, Doepke and Zilibotti, 2005, 2007). The third view, a staple of the business press, emphasizes the middle class con- sumer, the consumer who is willing to pay a little extra for quality. In this view, the y Abhijit V. Banerjee and Esther Duflo are both Professors of Economics and Directors of the Abdul Latif Jameel Poverty Action Lab, Massachusetts Institute of Technology, Cambridge, Massachusetts. Journal of Economic Perspectives—Volume 22, Number 2—Spring 2008—Pages 3–28 middle class demand for quality consumer goods feeds investment in production and marketing, which in turn raises income levels for everyone (Murphy, Shleifer, and Vishny, 1989). 1 This essay asks what we should make of these arguments in the context of today’s developing countries. Starting from data on patterns of consumption and investment by the middle class, we look for what is distinct about the global middle class, especially when compared to the global poor—defined as those whose per capita daily consumption, valued at purchasing power parity exchange rates, is below $2 a day—who were the subject of a previous essay in this journal (Banerjee and Duflo, 2007b). In particular, is there anything special about the way the middle class spend their money, earn their incomes, or bring up their children?class spend their money, earn their incomes, or bring up their children?...
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This note was uploaded on 05/11/2010 for the course ECON 4626 at Colorado.