Download Equity and Economic Growth

Equity and Economic
Growth
University of Warsaw, School of
Economic science
Zoljargal Munkhsaikhan
Introduction
The relationship between equity and economic
growth has long attracted the interest of
researchers. Whether inequality helps or harms
future economic growth? The issue remains
contentious. Past studies find differing effects
when considering rich and poor countries,
regions versus nations and so on.
Economic theories that hypothesize that
income inequality harms growth can be
grouped into three categories:
First, the political-economy approach
hypothesizes that in unequal societies
redistribute resources from rich to poor .
Increase in income inequality inhibits
economic growth.
Second, income inequality retards growth by
encouraging social conflict within societies.
In this manner, inequality results in more
crime and unlawful activities, which
threaten investment and property rights.
Third, the imperfect capital market
hypothesis suggests that inequality is
associated with credit barriers that reduce
the ability of lower classes to invest in
physical and human capital.
Theoretical review
• Economic inequality: comprises all
disparities in the distribution of economic
assets and income. The term typically
refers to inequality among individuals and
groups within a society or among
countries. Economic Inequality generally
refers to equality of outcome, and is
related to the idea of equality of
opportunity.
• Gini Coefficient: Developed by an Italian
statistician Corrado Gini in the 1910s, Gini
Coefficient is commonly used to indicate
income inequality in a society. Gini
Coefficient is a number which has a value
between zero and one. As the value of the
Coefficient rises, the higher the degree of
income inequality in a society becomes
• A Kuznets curve:
Simon Kuznets argued that levels of
economic inequality are in large part the
result of stages of development. Kuznets
saw a curve-like relationship between level
of income and inequality, now known as
Kuznets curve.
• Economic growth:
Several recent economists have investigated
the relationship between inequality and
economic growth using econometrics.
In their study for the World Institute for
Development Economics Research, They
conclude that too much equality (below a
Gini coefficient of 0.25) negatively impacts
growth due to "incentive traps, free-riding,
labour shirking, and high supervision costs
• Robert Barro wrote a paper arguing that
inequality reduces growth in poor
countries and promotes growth in rich
ones.
• A number of other researchers have
derived conflicting results, some
concluding there is a negative effect of
inequality on growth.
Empirical research
• The above-mentioned arguments reflect
inequality does not always have negative
or positive effect on economic growth
directly
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Gini Coefficient in the world
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Gini Coefficient Place
Survey year
0.244
Hungary
1999
0.247
Denmark
1997
0.249
Japan
1993
0.250
Belgium
1996
0.250
Sweden
2000
0.254
Czech Republic
1996
0.258
Norway
2000
0.258
Slovak Republic 1996
0.262
Bosnia and Herzegovina
2001
0.268
Uzbekistan
2000
0.269
Finland
2000
0.282
Albania
2002
0.282
Macedonia, FYR
1998
0.283
Germany
2000
0.284
Slovenia
1998-99
0.289
Rwanda
1983-85
0.290
Croatia
2001
0.290
Kyrgyz Republic
2001
0.290
Ukraine
1999
0.300
Austria
1997
0.300
Ethiopia
2000
0.300
Ghana
1999
0.303
Romania
2000
0.304
Belarus
2000
0.308
Luxembourg
2000
0.313
Kazakhstan
2001
0.316
South Korea
1998
0.316
Poland
1999
0.318
Bangladesh
2000
0.319
Bulgaria
2001
0.319
Lithuania
2000
0.324
Latvia
1998
Gini Coefficient Place
Survey year
0.325
India
1999-2000
0.325
Spain
1990
0.326
Netherlands
1994
0.327
France
1995
0.330
Pakistan
1998-99
0.331
Canada
1998
0.331
Switzerland
1992
0.333
Burundi
1998
0.334
Yemen, Republic
1998
0.343
Indonesia
2002
0.344
Egypt, Arab Republic
1999
0.344
Sri Lanka
1995
0.347
Tajikistan
1998
0.352
Australia
1994
0.353
Algeria
1995
0.354
Greece
1998
0.355
Israel
1997
0.359
Ireland
1996
0.360
Italy
2000
0.360
United Kingdom
1999
0.361
Vietnam
1998
0.362
Moldova
2001
0.362
New Zealand
1997
0.364
Jordan
1997
0.365
Azerbaijan
2001
0.367
Nepal
1995-96
0.369
Georgia
2001
0.370
Lao PDR
1997
0.372
Estonia
2000
0.379
Armenia
1998
0.379
Jamaica
2000
0.380
Gambia
1998
0.408
United States
2000
0.425
Singapore
1998
0.465
China
2004
0.525
Hong Kong,
2001
• GDP per capita 2008 IMF
• Place
GDP per capita US$
Place
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India
Spain
Netherlands
France
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US$
Hungary
Denmark
Japan
Belgium
Sweden
Czech Republic
Norway
Uzbekistan
Finland
Albania
Germany
Rwanda
Ukraine
Austria
Ghana
Belarus
Luxembourg
Kazakhstan
Korea, South
Poland
19,499
37,266
33,525
36,235
37,245
25,395
53,451
2,630
36,217
6,859
35,442
1,041
7,347
39,634
1,500
12,291
82,306
11,416
27,647
17,482
Canada
United Arab Emirates
Switzerland
Australia
United Kingdom
United States
Hong Kong China
GDP per capita
2,800
30,621
40,431
34,208
39,183
38,830
42,783
37,299
36,523
46,859
43,811
• From the empirical studies, we find that
there is rather robust negative relationship
between inequality and economic growth
in the developed countries and poor
countries. Except some contradictions
Conclusion
Studies of inequality and economic growth
have been well conducted by many other
scholars and organizations. But the
inequality-economic growth debate
remains unsettled. We see those
contradictions in relationship between
Kuznetz curve, Gini coefficient, economic
growth and so on.