Transcript Development Economics Inequality of Growth Model

Development Economics
Inequality in Growth Models
Jinjie Cui (Eric)
Friedrich Schnitzler
Faculty of Economics, University of Warsaw
8th December, 2008
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The planning for today
1. Definition of inequality
2. Causes of inequality
6. The Lorenz curve
7. Perfect inequality
- Kuznets curve
3. Evolution of inequality
4. Effects of inequality
5. Mitigating factors for inequality
8. Perfect equality
9. Properties of the Lorenz curve
10. Problems of the Lorenz curve
11. The Gini coefficient
12. Statistics for Gini coefficient
13. Effects of inequality on growth and investment
14. Determinants of inequality
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1. What is inequality?
Definition:
Inequality refers to disparities in the distribution
of economic assets and income.
The term typically refers to inequality among
individuals and groups within a society, but can
also refer to inequality among nations.
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2. The causes of inequality
 The labor market
1).Innate ability
2).Education
3).Globalization
 Gender, race, and culture
 Diversity of preferences
 Development patterns (Kuznets curve)
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Kuznets curve
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3. Evolution of Inequality
 Kuznets (1955) curve was accepted through the 1970s as a strong
emiprical regularity.
 Papanek and Kyn (1986) found that Kuznets relation is statisticlly
significant but explains little of the variations in inequality across
countries or over time.
 Anand and Kanbur (1993) stated the Kuznets relation had
weakened over time.
 Li, Squire and Zou (1998) argued that the Kuznets curve works
better for a cross section of countries at a point in time than for the
evolution of inequality over time within countries.
 Barro (2000) found that Kuznets curve shows up as a clear empirical
regularity across countries and over time and that the relationship
has not weakened over time.
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4. Effects of Inequality
 Credit-Market Imperfections
 Political Economy
 Sociopolitical Unrest
 Saving Rates
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5. Mitigating factors for inequality
 Public education
 Progressive taxation
 Minimum wage
 Subsidization
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6. The Lorenz curve
 Was developed by Max O. Lorenz
 Is a graphical representation of the distribution
of functions
 Often used to represent income distribution or
other inequality
 We are using the curve in the most cases for
presenting income inequalities
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The Lorenz curve
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The Lorenz curve
 Every point on the Lorenz curve (red line)
represents the income of a given percent of
people.
 For example 60% of all people have only 40 %
of the total income
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7. Perfect inequality
 If we are looking to the blue line we see that in
this case, the case of perfect inequality, only 1
people is going to earn 100 % of the total
income.
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8. Perfect equality
 In the case of perfect equality 1% of the people
is going to earn 1 % of the total income. ( the
green line)
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9. Properties of the Lorenz curve
The Lorenz curve
Starts in (0;0) and ends in (1;1)
Cannot rise above the line of perfect equaltiy
Cannnot sink below the line of perfect
inequality
Is increasing
Is a convex function
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10. Problems of the Lorenz curve
The Lorenz curve is just a graphical
presentation of facts or distributions.
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11. The Gini coefficient
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The Gini coefficient
 The Gini coefficient (Gini) is often used as a
measure of inequaltity of income distribution or
inequaltiy of weath distribution.
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The Gini coefficient
 Is defined as a ration with values between 0 and
1
 A low Gini coefficent indicates a more equal
distribution
(The space between the “perfect Distribution
line” and the “Lorenz Curve” is small)
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12. Statistics for Gini coefficients
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Statistics for Gini coefficients
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Statistics for Gini coefficients (Results)
 No big changes in the “Gini coefficients”
 High correlation between the years also we are
talking about a time period of 30 years
 Number of observations is not very high
 Question : From which countries are the “Gini
coefficients” taken ?
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13. Effects of Inequality on Growth and
Investment
We can say that there is no relation between the general Gini
coefficient and the growth rate. (Surprising result BUT )
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Effects of Inequality on Growth and
Investment
 If we allowed that the Gini coefficient depends
on the level of economic development our
results are going to change.
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Effects of Inequality on Growth and
Investment
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Effects of Inequality on Growth and
Investment
 Now we are going to see the expected influence
(-)of the Gini coefficients on the grow rate
 But what is more interesting is the change in
omen by comparing the influence of the Gini
coefficient from Countries with a per Capital
GDP lower than $2070 or higher than this level
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Effects of Inequality on Growth and
Investment
We are seeing the expected omen for countries
with a lower per capital GDP but a positive
influence of inequality for countries with an high
per capital GDP.
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Effects of Inequality on Growth and
Investment
Robert J. Barro gives a possible
explanation in his paper:
“A possible interpretaition of the results involves the idea that creditmarket constraints would be more serious in poorer countries. In
poor countries, the net effect of inequality on growth may be
negative because of the severity of these credit – market problems.
(…) In contrast, for rich countries, here credit constraints are less
serious, the growth-promoting aspects of inequality max dominate."
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14. Determinants of Inequality
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Take Home sentence
 “Growth tends to fall with greater inequality when
per capita GDP is below around $ 2000 and to
rise with inequality when per capita GDP is
above $2000.”
( Robert J. Barro “Inequality and growth in a
panel of countries” )
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Source:
Journal:
[1] Barro, Robert J. “Inequality and Growth in a Panel of
Countries.” Journal of Economic Growth 5: 5-32 (2000)
Internet:
www.wikipedia.org
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Questions???
Thank you for your time!!!
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