Guam's Income Distribution, 1981-2005

Article excerpt

INTRODUCTION

Guam is at a critical juncture in its economic history. The impending military build-up on the island is expected to drastically change its socio-economic landscape. Since the planned move of the Marines from the base in Okinawa, Japan to Guam was first announced in October 2005, policymakers and the private sectors have engaged in discussions on how best to harness this major event into one that will enhance the island's economic development prospects.

As in other economies that faced a similar opportunity to increase its level of economic development, there is concern about how the resulting economic development will affect the local population. Who gains and who loses on the road to economic development?

One concern in particular is how economic development will affect the way in which incomes (or more broadly, resources) are shared by or distributed among the local population. Although the literature presents mixed evidence on the relationship between income distribution and economic growth, there appears to be a consensus on the statement that "it is the character of economic growth (how it is achieved, who participates, which sectors are given priority, what institutional arrangements are designed and emphasized, etc.), not economic growth per se, that matters (Todaro, 2000, p. 179). In other words, the economic development process could be designed so that it would have an equalizing effect on income distribution. This clearly points to a role for deliberate policymaking and economic planning.

Furthermore, there is no evidence to suggest that a more equitable income distribution would be possible only at the expense of rapid economic growth. As Todaro (2000) notes, "rapid economic growth and more equitable distribution of income are not necessarily incompatible as development objectives." (page 179)

This paper will look at the issue of income distribution in general and in the context of Guam in particular. The paper is organized in the following section: a review of literature on the relationship between economic development and income distribution and measures of income distribution and data on Guam, with attempts to explain changes in Guam's income distribution over time.

Based on our review of existing literature on Guam's income distribution, this paper is the first attempt to analyze existing data. As such, it not only contributes to the academic literature but also fills in the serious gaps in both the availability and analysis of reliable, current and relevant economic data on Guam. It is hoped that this paper will provide policymakers, businesses and communities, both local and international, with an effective tool to plan for future decisions and courses of actions that will aid in Guam's economic development.

THE RELATIONSHIP BETWEEN ECONOMIC DEVELOPMENT AND INCOME DISTRIBUTION: A REVIEW OF LITERATURE

The literature on the relationship between economic development and income distribution presents the possibility of the causal relationship running in both directions, that is, that economic development can have an impact on income distribution, and vice versa, that income distribution can affect the economic development process. Throughout the section, the term "economic growth" and "economic development" will be used interchangeable, although it is recognized that the two concepts are not identical. However, with deliberate policies, the economic growth can be made consistent with economic development. Consistent with the points just made, this section is then presented by first reviewing the literature on the effect of economic growth and development on income distribution, followed by the effect of income distribution on economic growth and development, keeping in mind the words of Meier and Rauch (2000) that "it is theoretically possible, of course, that development has no impact on income distribution." (page 375)

Effect of Economic Growth and Development on Income Distribution

Todaro (2000) asks "Does the pursuit of economic growth along traditional GNP-maximizing lines tend to improve, worsen or have no necessary effect on the distribution of income? …