Journal Review: Level of Development, Rate of Economic Growth, and Income Inequality
A Review of Journal Article :
Jih Y. Chang and Rati Ram. Level of Development, Rate of Economic Growth, and Income Inequality. Economic Development and Cultural Change, Vol. 48, No. 4 (July 2000), pp. 787-799
By : La Ode Sabaruddin
The study of the relationship between income inequality and the level of economic development was heavily influenced by the Kuznets inverse–U hypothesis. According to Kuznets (1955) there should exist an inverted-U correlation between income inequality and the level of economic development. The inverted-U correlation suggests that for low levels of economic development there will exist low levels of inequality in per capita GDP, and inequality will increase as income increases. However, as incomes reach a particular level, i.e., as the economy develops past a certain point, the relationship reverses and income inequality decreases. In other words, income inequality would change as economic growth changes or more precisely, income inequality would rise first and then decline with economic growth. As a result, structural transformation experienced by low-income countries would ignite a sequence of increasing and then decreasing inequality. Kuznets empirically documented this relationship for nations transitioning from agricultural to industrial economies.
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