Title: Level of Development and Income Inequality: An Extension of Kuznets‐Hypothesis to the World Economy
Abstract: KyklosVolume 42, Issue 1 p. 73-88 Level of Development and Income Inequality: An Extension of Kuznets-Hypothesis to the World Economy Rati Ram, Rati Ram Illinois State University Sunita Bose provided helpful research assistance. The author is, however, responsible for all errors and deficiencies.Search for more papers by this author Rati Ram, Rati Ram Illinois State University Sunita Bose provided helpful research assistance. The author is, however, responsible for all errors and deficiencies.Search for more papers by this author First published: February 1989 https://doi.org/10.1111/j.1467-6435.1989.tb02768.xCitations: 28 AboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onEmailFacebookTwitterLinkedInRedditWechat References 1 Several other scholars have also provided explanations for the U-hypothesis. For example, Fields [1979] considered a dualistic model to distinguish between changes in (relative) inequality and ‘absolute poverty’ as sectoral transfers occur. Braulke [1983], who also worked within a dualistic framework, suggested a slight generalization of Kuznets' hypothesis relative to intracountry inequality. Nugent [1983], following some other scholars, pointed out another kind of ‘measurement error’ as a possible source of the ‘U-curve’ in cross-section samples. Lecaillon et al. [1984, pp. 16-21] skillfully review some of these explanations. 2 Lecaillon et al. [1984, especially pp. 7–16] provide a good survey of several such studies. 3 Lecaillon et al. [1984] have recently reviewed the empirical status of the hypothesis. 4 It is obvious that Kuznets-hypothesis is just a potentially useful simplification since the degree of inequality within a country clearly depends on many other factors besides its level of development. Of particular relevance are the government's distributional policies, character of technological changes in the country, and the structure of its international trade. Therefore, a ‘true’ test of Kuznets-hypothesis may require much more extensive data than are typically utilized. 5 See Taylor [1983] for an insightful modelling of the ‘South’ as a ‘surplus labor economy’. Several characteristics of the ‘South’ in his model resemble attributes of the T-sector summarized here. 6 This number is derived from the data published by U. S. Department of Justice [1986, p. 1]. It is true, for the U. S. as well as for other DCs, that not all immigrants are admitted as workers; a sizable proportion of the immigrant population initially consists of ‘relatives’. However, sooner or later almost all of them join the labor force in the receiving country. 7 Estimated from Cameron [1984, p. 89]. 8 During the last about 15 years, large numbers of LDC residents have gone to oil-exporting countries in the middle-east. These countries are perhaps not quite a part of M, but may be regarded as M-like enclaves within the T sector. Most of these countries are not included in the Summers-Heston data set. 9 One of the important dissimilarities probably lies in the fact that most individual countries are fairly well-integrated political entities, but a reasonably cohesive international political structure is lacking. 10 This was one of the inequality measures formulated in an early work by Theil [1967]. Bourguignon [1979] has shown that this is the only population-weighted inequality index which is additively decomposable, homogeneous of degree zero in income, and satisfies the Pigou-Dalton criterion. Note that Theil's population-weighted inequality index is really the same as Bourguignon's‘L’. 11 The estimates are available for 1950-59 for 63 (of the 115) countries. Data on real GDP per capita and population are available for most years in respect of nine centrally planned economies also. See later discussion in the text and note 17 regarding the coverage of this study. 12 The most obvious limitation is that the data cover a period of only a little over two decades. For empirical work on a structural relation of the kind proposed in this study, one would like to have data for a longer period. This and several other limitations are mentioned later in the text. 13 The rate of growth is derived from the entire series on (mean) GDP per capita and not just from the values for the first and the last years. It is, of course, easy to observe that the average rate of growth of GDP per capita is considerably higher from 1960 to 1973 than from 1973 to 1980. 14 Since the observations are in time, it might be thought that the error term would be autocorrelated. Actually, there seems no significant autocorrelation. At any rate, feasible GLS estimates based on a first-order autoregressive error term are similar to those in Table 2, and are available from the author. 15 Although an equation like (2) appears to have been used in almost all studies, one or two scholars have questioned the logarithmic transformation for the income terms. The results reported in Table 2 are similar to those based on straightforward quadratic income terms. 16 The ‘turning point’, as implied by the regression estimates in Table 2, occurs when the (average) world GDP per capita is about 2,300 (international dollars at 1980 prices). That value roughly corresponds to the period 1976-77. A similar position for the turning point is obtained if the inequality index is taken as the income share of the countries that have the lowest GDP per capita and include 40|X% of the sample (world) population. The turning point is somewhat different if the inequality measure is taken to be the income share of the countries having the lowest GDP per capita and containing 75|X% of the sample population. 17 See note 10. There are two major problems in using data for years prior to 1960. One is that the resulting 63-country sample does not appear to be a fair representation of the world. Second, data for pre-1960 years for many countries are considerably less reliable. It is probably for these reasons that estimates from the 63-country data set show a somewhat different pattern. 18 Some results based on samples that do include centrally planned economies are available from the author. In general, these indicate (a) considerably smaller inequality in all years, and (b) a rather small increase in intercountry inequality (from 0.41 to 0.44) between 1960 and 1980. 19 The primary focus of this work is on developing a Kuznets-type model of intercountry inequality over the course of global economic growth in modern world system. Therefore, as far the author is aware, this study is different from all others in the general area of world inequalities. However, it could be considered as some kind of an extension of several related works. These include the important paper by Kravis, Heston and Summers [1978] in which they reported estimates of ‘real’ GDP per capita for over 100 countries and indicated, largely in intercountry or interregional terms, distribution of world income as of 1970. Whalley [1979] provided a picture of ‘total’ world inequality in or around 1972. A somewhat similar picture was presented more recently by Berry, Bourguignon and Morrisson [1983 b] and Groshand Nafziger [1986]. Even closer is the impressive study by Berry, Bourguignon and Morrisson [1983 a] in which they examined changes in world inequality between 1950 and 1977 by considering several points of time over the period. 20 If availability of data on intracountry inequality were better, and one could get time-series observations for sizable periods even in respect of something like a dozen individual LDCs, that would be a bigger advantage for empirical studies of Kuznets' original hypothesis than for the proposed extension. In fact, it is not obvious that omission of intracountry inequality from the data underlying Tables 1and 2 is a weakness of the empirical exercise. It might be possible to argue that such omission is an advantage, and that inclusion of intracountry inequality would reduce the usefulness of the exercise. References 21 Ahluwalia, MontekS. : ‘Income Distribution and Development: Some Stylized Facts’, American Economic Review, Vol. 66 (1976), pp. 128–135. 22 Berry, Albert; Bourguignon, FranÇoisand Morrisson, Christian:‘Changes in the World Distribution of Income between 1950 and 1977’, Economic Journal, Vol. 93 (1983a), pp. 331–350. 23 Berry, Albert; Bourguignon, FranÇois and Morrisson, Christian:‘The Level of World Inequality: How Much Can One Say?’, Review of Income and Wealth, Vol. 29 (1983b), pp. 217–241. 24 Bourguignon, FranÇois:‘Decomposable Income Inequality Measures’, Econometrica, Vol. 47 (1979), pp. 901–920. 25 Braulke, Michael: ‘A Note on Kuznets' U, Review of Economics and Statistics, Vol. 65 (1983), pp. 135–139. 26 Cameron, R. J. : Year Book Australia No. 68, 1984, Canberra : Australian Bureau of Statistics, 1984. 27 Fields, GaryS. : ‘A Welfare Economic Approach to Growth and Distribution in the Dual Economy’, Quarterly Journal of Economics, Vol. 93 (1979), pp. 325–353. 28 Green, AlanG. : Immigration and the Postwar Canadian Economy, Macmillan Company of Canada, 1976. 29 Grosh, MargaretE. and Nafziger, E. Wayne: ‘The Computation of World Income Distribution’, Economic Development and Cultural Change, Vol. 34 (1986), pp. 347–359. 30 Kravis, IrvingB.; Heston, AlanW. and Summers, Robert:‘Real GDP Per Capita for More than One Hundred Countries’, Economic Journal, Vol. 88 (1978), pp. 215–242. 31 Kuznets, Simon:‘Economic Growth and Income Inequality’, American Economic Review, Vol. 45 (1955), pp. 1–28. 32 Lawrence, Ethel(ed.): Annual Abstract of Statistics No. 122, 1986 Edition, London : Her Majesty's Stationary Office, 1986. 33 Lecaillon, Jacques; Paukert, Felix; Morrisson, Christian, and Germidis, Dimitri: Income Distribution and Economic Development, Geneva : International Labour Office, 1984. 34 Nugent, Jeffrey B. : ‘An Alternative Source of Measurement Error as an Explanation for the Inverted-U Hypothesis’, Economic Development and Cultural Change, Vol. 31 (1983), pp. 385–396. 35 Papanek, Gustav F. and Kyn, Oldrich:‘The Effect on Income Distribution of Development, the Growth Rate and Economic Strategy’, Journal of Development Economics, Vol. 23 (1986), pp. 55–65. 36 Ram, Rati:‘International Income Inequality: 1970 and 1978’, Economics Letters, Vol. 4 (1979), pp. 187–190. 37 Robinson, Sherman: ‘A Note on the U Hypothesis Relating Income Inequality and Economic Development’, American Economic Review, Vol. 66 (1976), pp. 437–440. 38 Saith, Ashwani: ‘Development and Distribution: A Critique of the Cross-Country U-Hypothesis’, Journal of Development Economics, Vol. 13 (1983), pp. 367–382. 39 Summers, Robert and Heston, Alan: ‘Improved International Comparisons of Real Product and its Composition, 1950-80’, Review of Income and Wealth, Vol. 30 (1984), pp. 207–262. 40 Taylor, Lance: Structuralist Macroeconomics, New York : Basic Books, 1983. 41 Theil, Henri: Economics and Information Theory, Amsterdam : North-Holland, 1967. U. S. Department of Justice, 1984 Statistical Yearbook of the Immigration and Naturalization Service, Washington, D. C.: Superintendent of Documents, 1986. 42 Whalley, John: ‘The Worldwide Income Distribution: Some Speculative Calculations’, Review of Income and Wealth, Vol. 25 (1979), pp. 261–276. Citing Literature Volume42, Issue1February 1989Pages 73-88 ReferencesRelatedInformation
Publication Year: 1989
Publication Date: 1989-02-01
Language: en
Type: article
Indexed In: ['crossref']
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Cited By Count: 55
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