ABSTRACT
Introduction Although the economies in Southeast Asia have exhibited exceptional performance, it has become apparent that economic development in the region is uneven, and the emerging disparities pose critical challenges to inclusive and sustainable growth. There are a number of mechanisms through which rising inequality negatively affects growth of an economy. First, inequality may induce distortive redistributive policies and interventions (Alesina and Rodrik 1994). Second, inequality constitutes a root cause of sociopolitical instability and violence (Keefer and Knack 2002). Third, concentration of wealth and economic resources in small groups implies inadequate market size and aggregate demands (Murphy et al. 1989). Last, inequality entails a waste of human resources because the poor are often constrained in investing in education and health (Bénabou 1997).
