Kuznets Curve - Income Inequality and Growth

Added on - 28 May 2020

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Kuznets Curve1HOW THE KUZNETS CURVE EXPLAINS THE RELATIONSHIP BETWEEN INCOMEINEQUALITY AND GROWTHStudent’s NameCourseProfessor’s NameUniversity(City) StateDate
Kuznets Curve2How the Kuznets Curve Explains the Relationship between Income Inequality and GrowthToday, the Kuznets curve acts a vital tool in explaining the concept of growth and incomeinequality within economies of the world. According to Simon Kuznets, there is a significantrelationship between the two variables. In his theory, he introduces an inverted U-shaped curvewhich implies that the income distribution is very unequal as the income level in the countryrises initially. Afterward, the inequality decreases as the income level rises further (Heng,Liutang and Fu, 2006). Essentially, the curve shows that the economy is experiencing a rise inthe income level, inequality starts rising significantly up to a given point, after which it startsdropping with further increases in average income level in the country.The curveInequalityPer Capita IncomeSource: (Moffatt, 2017).Primarily, the Kuznets curve above implies that as an economy grows from anagricultural society into an industrialized one, the market forces initially raise the level ofinequality before later lowering it (Worstall, 2009). As such, as a nation experiences growth, itsoperations move from rural to urban areas and individuals migrate to seek better paying jobs. Inturn, the migration brings about a wide urban-rural income gap as rural populations decline while
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