Inequality and growth revisited asian development bank. Kuznets curve empirical relationship between economic development and inequality level. Democrati zation leads to institutional changes which encourage redistribution and reduce inequality. The effect of real per capita gross domestic product gdp on inequality involved the wellknown inverseushaped relation known as the kuznets curve. Diah utari, retni cristina central bank of indonesia, jakarta, indonesia sustainable economic growth has put indonesia as a middleincome country mic and currently, the level of. Established in 1911, the aer is among the nations oldest and most respected scholarly journals in the economics profession and is celebrating over 100 years of publishing.
In the 1950s and 1960s, simon kuznets hypothesized that as an economy develops, market forces first increase then decrease the overall economic inequality of the society, which is illustrated by the inverted ushape of the kuznets curve. At low levels of income, countries may exhibit traditional industries such as subsistence farming which generates low levels of inequality. The gini index, for its part, has maintained a significant negative relationship within the average number of years of the study. The kuznets curve and the inequality process munich. Measuring inequality gini coefficient is measured graphically by dividing the area between the perfect equality line and the lorenz curve by the total area lying to the right of the equality line in a lorenz curve diagram ranges in value from 0 perfect equality to 1 perfect inequality satisfies the properties of anonymity, scale. The kuznets hypothesis suggests that inequality is low at a lower income level but later increases at higher income level with economic growth. The empirical inequalitydevelopment studies have started to call into. The theil index, on the other hand, shows an inverse relation between the level of development and inequality, and does not indicate an invertedu pattern. Cohort size, kuznets curves, and openness matthew h ch and jeffrey g. As you probably know, the kuznets curve is a plot of inequality vs income. All structured data from the file and property namespaces is available under the creative commons cc0 license. Kuznets theory was tested over several decades after his article was published. The kuznets curve is concave down and skewed to the right.
Based on economic theory, two dominant explanations have been put forth to explain the relationship. If kuznets mostly linked the evolution of income distribution to the process of industrialization, many different explanations were proposed, including imperfection in capital market, shift in demand for skilled labour and institutional change due to democratization. This paper uses recently published top 1% income share series in studying the inequality development association. It appears that pollution and inequality are correlated features, with some countries under study heading toward. The hypothesis was first advanced by economist simon kuznets in the 1950s and 1960s. According to kuznets influential hypothesis, income inequality should follow an inverseu shape along the development process, first rising with industrialization and then declining, as more and more workers join the highproductivity sectors of the economy kuznets 1955. Indeed, the kuznets hypothesis is emphasized once we use the standard deviation of schooling. How urbanization affects the inequality in developing. The kuznets curve is a hypothetical curve that graphs economic inequality against income per capita over the course of economic development which was presumed to correlate with time. Starting from a low value, an increase in per capita gdp tended to raise inequality. Environmental kuznets curve, by analogy with the income inequality relationship postulated by kuznets 1965, 1966. The paper provides a political economy theory of the kuznets curve. Methods environmental poverty, a decomposed environmental kuznets curve, and alternatives. Personal or size distribution of income deals with the individual persons or households and the total income they receive functional or factor share distribution of income uses the share of total national income that each of the factors of production receives.
When sd and mad are used, although human capital inequality and average human capital display a slightly concave relationship, there are insufficient observations on the far right of panels b and d to confirm a kuznets curve. The ushaped pattern shows up strongly in a nonparametric trend, in stochastic kernel estimation, but weakly in a quadratic fixed effect trend. The environmental kuznets curve 5 good for the environment. Moran 2005 describes the kuznets curve hypothesis as the most influential publication on inequality and development. Kuznetss name was apparently attached to the curve by grossman and krueger 1993, who noted its resemblance to kuznetss invertedu relationship between income inequality and development. The kuznets curve and inequality jhu economics johns. Feb 14, 20 observed by simon kuznets in 1955, the kuznets curve predicts that inequality within a country will follow a determined path as it develops. Files are available under licenses specified on their description page. Williamson harvard university june 1999 the authors can be reached at the following email addresses. This curve is meant to illustrate economist simon kuznets.
In addition, we observe a clear human capital kuznets curve when theil and cv are used. Rather, it emphasizes that there is a tradeoff between the environment and equality. Specifically, we test for the existence of an inverted ushaped relationship between income inequality and. This is the evidence, such as it is, that the kuznets curve exists. Introduction the environmental kuznets curve is a hypothesized relationship between various indicators of environmental degradation and income per capita. Several theories have been put forward to explain the inverted ucurve hypothesis. Waa6bhdc abstract klaus deininger and lyn squire have recently produced an inequality database for a panel. Environmental poverty, a decomposed environmental kuznets. The kuznets curve hypothesis has been one of the most debated issues in development economics since the mid1950s. The rise and fall of the environmental kuznets curve. Inequality and development across and within countries. Inequality and growth in a panel of countries 7 that is, the places that are more unequal ex ante are also those that are more unequal ex post. One of the major stylized facts about longrun processes of economic development is the kuznets curvethe inverseu shaped pattern of inequality. Stern department of economics, rensselaer polytechnic institute, troy, ny 12180, usa june 2003 1.
Apr 10, 2019 in the 1950s and 1960s, simon kuznets hypothesized that as an economy develops, market forces first increase then decrease the overall economic inequality of the society, which is illustrated by the inverted ushape of the kuznets curve. Regression results for income inequality kuznets curves. At the global level, they also find that human capital inequality has increased from 1870 to approximatively 1970, then has decreased. Economic growth and income inequality simon kuznets the. Kuznets and environmental kuznets curves for developing. The graph when plotted of this relationship between income inequality and income per capita has the shape of an inverted u curve. They also provide a basis on which the kuznets hypothesis may be further examined in the future and suggest that rising inequality may not be a necessary part of the process of a countrys development. The kuznets curve has an initial uptick from the gini concentration ratio of the earned income of a poorly educated agrarian labor force. In this case, the predicted negative relation between inequality and growth holds for expost, as well as exante, income inequality. The third section presents the econometric model adopted to explain this rise inequality. Regression results for income inequality kuznets curves 10 4. In a seminal paper, kuznets 1955 argued that as countries developed, income inequality. Within countries, we find evidence of an inverted ushape curve for human capital inequality over time, namely a kuznets curve for human capital.
The two variables are co2 per capita and gdp per capita. The kuznets curve and inequality adam smith institute. The rise and fall of the environmental kuznets curve david i. Grossman and krueger 1995 and the world bank 1992 first popularized this idea, using a simple empirical approach. Finally, a conclusive paragraph highlights the need for further research and the contribution this paper makes to the ongoing debate on inequality. School of environmental, physical, and applied sciences, university of central missouri, humphreys 225, warrensburg, mo 64093, usa. Study on the inequalitydevelopment relation using top income shares data1 elina tuominen university of tampere, finland elina. 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 measures based on the.
According to the kuznetss ucurve theory, urbanization increases inequality in developing countries during the first phase of industrialization. Mar 14, 2014 whether the chinese government can change their attitude towards inequality and economic development is bound to have a considerable effect on whether china can reduce inequality and undergo the second half of the kuznets curve. Wars increased inequality but had nonpermanent effects, while progressive taxation had no impact until 1980, at odds with atkinson, piketty, saez and associates findings. This paper presents an alternative hypothesis why income inequality differs between the countries.
A quadratic fit is significantly concave, although most of the curvature comes from the low inequality levels at high incomes rather than low inequality at low incomes. The article aims at identification of the determinants of income inequality in the eu countries in the period of 200420. Thomas piketty challenged kuznetss hypothesis with his assertion that. Against this background, milanovic posited what he calls kuznets waves successive periods of rising, and then falling, inequality within a given country. The ekc is an essentially empirical phenomenon, but most of the ekc literature is econometrically weak.
Section 3 describes patterns in inequality, openness and cohort. Merits and limitations of kuznets curve research papers. The ekc is named for kuznets 1955 who hypothesized income inequality first rises and then falls as economic development proceeds. The environmental kuznets curve ekc refers to an invertedushaped relationship between some pollutant level and per capita income, i. The rising level of inequality before wwi fits well with the ideas of the kuznets curve and maximum inequality, whereas the decline in inequality was due to shocks e. Our data do not generally support the idea of classical or environmental kuznets curves that are inverse u. The top income shares data are of high quality and cover about a century for some countries and thus provide an interesting opportunity to study slow development processes. Simon kuznets put forward the hypothesis that relationship between per capita national income and the degree of inequality in income distribution may be of the form of invertedu. View merits and limitations of kuznets curve research papers on academia. Cohort size, kuznets curve, and openness, june 1999, downloadable on ranko milanovic, determinants of cross country income inequality. Kuznets 1955 suggested that income inequality was generally rising in the early stages of economic development.
Measuring inequality and poverty measuring inequality. This paper presents a critical history of the environmental kuznets curve ekc. The journal publishes 11 issues containing articles on a broad range of topics. None of this research tested kuznets hypothesis directly. In a nutshell, the hypothesis simply states that income inequality should follow an inverseu shape along the development process. The first is that kuznets behavior is an income effect and results because the environment is a luxury good. In this regard, beckerman 1992 represents an early in. Due to limitations of data he used an inequality measure of the ratio of income share of the richest 20 per cent of the population to the bottom 60 per cent of the population known as kuznets ratio. In doing so, the results call into question the traditionally held view of the relationship between income inequality and human development. In the latter phases of the development process, inequality declines, he argued, and this hypothesis of an invertedu relationship between inequality and. When development leads to increas ing inequality, this can induce political instability and force democratization on political elites. This paper shows that the iconic kuznets curve can be derived from the inequality process ip, a conservative particle system, presenting a counterexample to gallegati et al.
Can anyone please help me on the way to get a kuznetz shaped curve. Economic growth and income inequality gabriel zucman. The empirical validity of this kuznets curve has been intensively inves. However, the kuznets effect associated to gdp per capita is 4 times smaller. Section 4 presents pooled and fixedeffects estimates of the relationship between inequality and cohort size, kuznets curve effects, openness and. Key words income distribution, kuznets curve, nonparametric analysis, inequality, growth. Inequality in years of schooling is shown to have mechanically decreased along with the decline in the share of illiterate people. Thus the relationship between income distribution and income level can be described by an inverted u curve.
Pdf the kuznets curve and the inequality process researchgate. When plotted against average years of schooling, human capital inequality within countries has clearly followed an inverted ushape curve, namely a kuznets curve of education. Cohort size, kuznets curves, and openness by matthew higgins federal reserve bank of new york and jeffrey g. The kuznets curve hypothesis posits that initially, at lower levels of. There is a literature verifying the existence of both an inverted ucurve relating income inequality with economic growth and the mechanism for economic growth evolution proposed by kuznets. The curvature is also entirely dependent on using a logarithmic scale for income. Stern crawford school of public policy, the australian national university abstract the environmental kuznets curve ekc is a hypothesized relationship between various indicators of environmental degradation and income per capita.
The environmental kuznets curve assumes an inverted ushaped relation between environmental damage and per capita income. Economic models for the environmental kuznets curve. Trade liberalization through the removal of tariff and nontariff barriers gears up the process of structural transformation and at the same time changes the income and wealth distribution of an economy. Sep 27, 2009 4197 the kuznets curve and inequality 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. Recently it has been argued in the literature that in addition to income levels, the inequality in the distribution of power and income is positively related to environmental degradation. At the global level, the world inequality in human capital has followed a similar trajectory, first increasing from 1870 to 1970, then decreasing. Higgins, matthew and jeffrey williamson, explaining inequ ality the world round. China a country example of the kuznets curve in the making. Effect of income inequality on economic growth 12 3. Stern rensselaer polytechnic institute, troy, ny, usa available online summary. Pdf the impact of income inequality on economic growth. The environmental kuznets curve suggests that economic development initially leads to a deterioration in the environment, but after a certain level of economic growth, a society begins to improve its relationship with the environment and levels of environmental degradation reduces. In 1954, us economist simon kuznets presented a conjecture about how inequality in market economies evolves. Income inequality and the environmental kuznets curve.
How urbanization affects the inequality in developing countries. Economic rather than political forces appear to dominate inequality trends in spain. Simon kuznets, 1962 inequality persists, and so does a global concern over it. Mar 30, 2018 how might inequality be affected by income growth. Democratization in turn opens the way for redistribution and mass education, and reduces inequality. Inequality, poverty and the kuznets curve in spain, 1850. According to the kuznets curve, inequality in capitalist societies. In the latter phases of the development process, inequality declines, he argued, and this hypothesis of an invertedu relationship between inequality and development has since been known as the kuznets curve. It would seem that he was reasonably correct as well.
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