Kuznets hypothesis of income inequality income inequality and the level of economic development has a shape of u. Theory shows that income inequality is a condition that prevails along. However, over time, such data began to emerge, and the opportunities to test kuznets findings became greater. Economic growth, financial development, and income inequality the paper finds that financial development contributes to reducing inequality up to a point, but as financial development proceeds further, it contributes to greater inequality. This effect diminishes as per capita gdp rises and may be positive for the richest countries. Wiley, new york kuznets s 1955 economic growth and income inequality. The kuznets inverted ucurve hypothesis that posits the relationship between income and income inequality has met varying degrees of. The eam defies the kuznets curve, which insists growth produces inequality, and that inequality is courbs necessity for overall growth. Inequality and economic growth in bangladesha diversified. Its purpose is to observe the impact of income inequality on economic growth in nigeria, examine whether kuznets curve holds and suggest probable and effective policy. The study of inequality and economic growth to the developing countries are now a days a comprehensive issue since growth stimulate the standard of living to the poor people and accordingly reduce income inequality. In contrast to the kuznets hypothesis, there is evidence of a strong ucurve relationship between the top income shares and per capita income. One such contribution the literature of economics received was from the seminal work of simon kuznets. The kuznets hypothesis suggests that inequality is low at a lower income level but later increases at higher income level with economic growth.
Structural transformation is a key factor in determining productivity growth and income distribution in asia. Income inequality and economic growththe kuznets curve. It should be noted, however, that the kuznets hypothesis associated the evolution of inequality with economic growth kuznets 1955. This paper examines two closely related empirical hypotheses. Economic development and income distribution in japan. Simon kuznets predicted that as an economy develops inequality will rise and then, at a certain stage of development naturally begin to fall back again it would seem that he was reasonably correct as well. Kuznets s invertedu hypothesis has been debated in the last few decades, and. Oct 08, 2014 equitable growth supports research and policy analysis on how trends in economic inequality and mobility and changes in the economy have affected the concentration of wealth, income, and earnings, and how these distributional shifts have affected the promise of economic security and opportunity. Economic growth and energy regulation in the environmental.
If you know of missing items citing this one, you can help us creating those links kunets adding the relevant references in the same way as above, for each refering item. The paper then tests the validity of the kuznets hypothesis using panel data. Does inequality in the distribution of income increase or decrease in the course of a countrys economic growth. Lewis and kuznets on economic growth and income inequality. That matters because it wordlessly whispers a powerful message. Inequality and economic growth in bangladesh a diversified. Economic growth and income inequality simon kuznets the paper by kuznets can be found here. The concept of kuznets hypothesis suggests that as economic growth occurs, income inequality first increase and than decline after a certain turning point which we may have the scope to investigate the stage of economic development and the relationship between inequality and economic. In 1955, kuznets started the analysis of the relationship between income inequality and environmental pollution accompanying the pursuit of economic development. Simon kuznets national bureau of economic research. This article revisits kuznets hypothesis which suggested that inequality and growth have an inverted u shaped relationship. We find a robust invertedu relationship between income inequality and political development, but not one between income inequality and economic development.
The kuznets inverted ucurve hypothesis that posits the relationship between income and income inequality. Pdf the impact of income inequality on economic growth. Economic growth leads, according to kuznets, at first to glaring income disparities and only when a certain state of development has been reached to a levelling of incomes. The relationship between economic growth and income. A regional perspective shibalee majumdar and mark partridge egalitarianism refers to the doctrine of the equality of mankind and the desirability of political, economic and social equality. The nobel laureate simon kuznets was a pioneer in the study of income inequality, writing in 1955. Simon kuznets views about the invertedu relationship between inequality and development and the process of structural transformation have long been under the lens of researchers. Kuznets 1955 hypothesizes that during economic growth, per capita income inequality first increases, reaches a peak and then declines. For a discussion of the economic epoch concept see simon kuznets, modern economic growth. Income inequality, environmental degradation and economic. The improvement of inequality and growth may reduce the social movement to the government and may keep the economic and social integrity amongst the different ethnic groups by. Section 2 trends in growth and income inequality across the oecd.
Unemployment rate and educational attainment statistically significantly and positively. Jstors terms and conditions of use provides, in part, that unless you have obtained prior permission, you may not download an entire issue of. Kuznets 1955 explored the historical evolution of income distribution and per capita output. The hypothesis was first advanced by economist simon kuznets in the 1950s and 1960s one explanation of such a progression suggests that early in development, investment opportunities for those who have money multiply. This finding implies that income inequality measured by a ratio of the. The kuznets curve simon kuznets 1955, was first used to describe the progression of economic inequality as countries develop.
Significant impact of economic growth on poverty alleviation is eroded by high income inequality. The relationship between income inequality and economic development has popularly been characterized by the kuznets invertedu curve kuznets, 1955, which argued that income inequality tends to increase at an initial stage of development and then decrease as the economy develops. Pdf economic growth, income inequality and environment. The kuznets curve and inequality adam smith institute. In the case of spain, inequality over time suggests an inverted w rather than the kuznetsian inverted u. Inequality, growth, kuznets curve, gini coefficient. Kuznets 1955 argued that as countries developed, income inequality first.
The environmental kuznets curve is a hypothesized relationship between various indicators of environmental degradation and income per capita. An analysis of some properties of alternative measures of income inequality based on the gamma distribution function. Economic growth, financial development, and income inequality. A series of studies using crosscountry data all suggest that growth has neither a positive nor a negative effect on inequality.
In the early stages of economic growth degradation and pollution increase, but beyond some level of income per capita which will vary for different indicators the trend. In 1980, the per capita income of the 15 richest nations was 44 times that of the 15 poorest, by 2000, that multiple had increased to 62. The relationship between economic growth and inequality has been studied by economists for more than a century. It was the beginning to discuss the relationship between income distribution and development which later on became popular as kuznets inverted u hypothesis or kuznets curve. A new approach for the age of globalization, harvard university press. Nonetheless, this issue is still far from resolved and, as explained in this article, the answer to the question of how unequal household income affects a countrys growth is still not clear, both from a theoretical and also empirical perspective.
This paper is perhaps 4 per cent empirical information and 95 per cent speculation, some of it possibly tainted by wishful thinking. Economic growth, income inequality and environment. The kuznets curve and the inequality process munich. These estimations of historical income inequality indicate that the gini was around 51, 52 for the uk in 1801. In a neoclassical growth framework with a typical politicaleconomy mechanism, this paper reexamines the relationship between the income inequality and economic growth by introducing government spending into the production function and the utility function. The starting point for the theoretical literature on the relationship between growth and inequality is the kuznets hypothesis. We test this relationship for 36 less developed countries ldcs using a regression model, with quadratic.
However in 2009, reflecting better economic performance in several developing and transition countries. Oct 12, 2014 economic growth and income inequality simon kuznets. Current day income inequality in the uk is again around 51, 52 as measured by. The kuznets curve and inequality economics johns hopkins.
Inequality, poverty and the kuznets curve in spain, 1850. In this paper, we are going to refer to the concept of economic equality. April 30, 1901 july 8, 1985 was an american economist and statistician who received the 1971 nobel memorial prize in economic sciences for his empirically founded interpretation of economic growth which has led to new and deepened. Total output and production structure, harvard university press, cambridge, mass. Blackwell, oxford kenny d 1979 correlation and causality. Ii, international tables new york, 1970, notes to table 5, p. His study demonstrated that income inequality widens in the early phase of economic growth and narrows in the later stage of development. Apr 10, 2019 the middle income countries used in the data set are used as evidence for this claim as kuznets primarily used countries in latin america, which have had histories of high levels of economic inequality as compared to their counterparts in terms of similar economic development. Equitable growth supports research and policy analysis on how trends in economic inequality and mobility and changes in the economy have affected the concentration of wealth, income, and earnings, and how these distributional shifts have affected the promise of. Kuznets 1955 introduced the inverted ushaped kuznets curve that showed that in an economic system, at the initial level of low economic growth, income inequality is low and as growth occurs, income inequality increases till a threshold, after which, income inequality decreases with increased economic growth.
Thus the relationship between income distribution and income level can be described by an inverted ucurve. Economic growth rising inequality and rapid growth. The kuznets hypothesis suggests that as development proceeds a country will experience first rising then falling income inequality. Rate, structure, and spread, yale university press, new haven, conn. Kuznets inverted u hypothesis of income inequality. It implies that in each country group income inequality declines and then increases with the rise of gdp per capita following a quadratic trend. New international panel data with the first internally consistent time series for a large number of countries shows no evidence of a kuznets curve. National income, 19191938 in national income, 19191938, simon kuznets. The data covers the period between 1870 and 2011 for 26 countries. The relationship between economic growth and income inequality. Even if we had data to approximate the income structure just outlined, the broad question posed at the starthow income inequality changes in the process of a countrys economic growthcould be. The underlying message that rising inequality is an inevitable stage on the journey towards economic success for all was too good a story to doubt and the kuznets curve was taught to every student for at least the next 50 years. Front matter, tables of content, preface to national income and its composition, 19191938, vol. It describes the finding that inequality first increases and then decreases.
The key problem facing researchers who studied the correlation between income inequality and economic growth in the years following the publication of kuznets paper was the lack of data on developing countries. We test this relationship for 36 less developed countries ldcs using a regression model, with quadratic functional form, relating income inequality to income. The improvement of inequality and growth may reduce the social movement to the government and may keep the economic and social integrity amongst the different ethnic groups. Even if we had data to approximate the income structure just outlined, the broad question posed at the starthow income inequality changes in the process of a countrys economic growth could be. In this paper the author estimates the income distribution in prewar japan. Economic growth and income inequality simon kuznets the. However, the existing literature analyzes the relationship between income inequality and per capita income, which is, at best, an incomplete measure of the multidimensional process of economic development.
Kuiwai li, in redefining capitalism in global economic development, 2017. In his analysis, he theorized how an interindustry shift to the service sector will have an impact on earning inequalities, although such an impact is almost irrelevant to the entire populations income distribution kuznets, 1955. Using a sample of 80 countries from the 1980s, the author shows that two types of factors explain variations in income inequality. This paper provides new evidence on the relationship between economic growth and income inequality. The middleincome countries used in the data set are used as evidence for this claim as kuznets primarily used countries in latin america, which have had histories of high levels of economic inequality as compared to their counterparts in terms of similar economic development. Analyzing the relationship between income inequality and. Subsequently, the kuznets curve has been applied to the evolution of pollution levels of countries through their development process. This article differs from previous articles on this subject, by being broader in scope although remaining exploratory in nature.
Mar 30, 2018 how might inequality be affected by income growth. Scribd is the worlds largest social reading and publishing site. Thus growth impacts on income inequality and environmental deterioration differ substantially among the. Income inequality and economic growththe kuznets curve revisited. Even with adjustments to allow for hidden costs and inputs, growth in productivity accounts for over half of the growth in product per capita see simon kuznets, economic growth of nations. Summary data from developing economies indicate that the earlier phases of economic development tend to be characterized by increasing income inequality, as those engaged in the small but growing modern sector of the economy pull away from those still left in agriculture and other subsistence activities. For a recent classification identifying the noncommunist developed countries see united nations, yearbook of national accounts statistics, 1969, vol. Impact of inequality on economic growth in this context, person and tabellini 1994 conducted a study on the relationship between inequality and growth in the case of 56 countries, nine of which are developed during the postwar period.
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