ABSTRACT
This chapter focuses on the social inequality in the developing world and introduces the concept of social exclusion. In social exclusion theory, some markets are assumed to be nonWalrasian, implying that some people may not be able to realize the exchange they are willing to make because they are excluded from market exchange, despite having sufficient real income or productive capacity. In the heterogeneous capitalist democracy, the labor market operates as the primary mechanism of social exclusion. Because rural incomes can explain a significant part of the overall income inequality in developing countries, explaining rural underdevelopment is a way to test exclusion theory. Social exclusion theory attempts to explain inequality by looking at the performance of institutions. Given the empirical consistency of the theory of social exclusion, it can be used to discuss the economic policies and evaluation. Rural development can be achieved if the mechanisms of social exclusion are eliminated or weakened, but this is a massive endeavor.
