Abstract
Following Kuznets’ pioneering works, the growth-inequality nexus was stylised as an inverted U-shaped relation. As per that paradigm, economic inequality initially increases when a nation embarks upon a modern economic development process, but later on, declines as the development process cross a certain threshold. The paradigm roughly bears out the experience of the industrialised countries of Europe and North America from the beginning of the nineteenth century up to the mid-1970s. The inevitability of the pattern came under question when data from a broader range of countries became available by the 1970s. Then the post-globalisation experience of countries around the world virtually negated the falling part of Kuznets inverted U. Most countries which profited from globalisation in the form of upward shifts of their growth trajectories also experienced a rise rather than a decline in economic inequality. The present paper is a survey of the large and interesting literature on the changing nature of inequality before and after globalisation. The survey finds that inequality across countries has actually declined as a result of globalisation whereas inequalities within countries have almost invariably increased. Apart from usual factors such as bequest and skewed distributions of wealth, the new factors that have accentuated post-globalisation inequality are widening wage disparities, inequalities of opportunities, the onslaught of automation and rent-seeking activities of a section of the rich. The survey also notes how inequality has been moderated in some counties through effective taxes and transfer programmes. After summarising the arguments why growing economic inequality cannot be left unattended, the survey concludes with an outline of the policy choices which are being currently discussed in the academic and administrative circles.
Highlights
A subject which has received the attention of thinkers and researchers in the 21st Century is the growing economic inequality in most parts of the globe
According to early thinking in Development Economics, inequality first increases when, an economy embarks upon the modern development process, but later declines as development level crosses a certain threshold
Since the mid-1970s, as globalisation gathered momentum and countries in different parts of the world shifted to higher growth trajectories, inequalities began to rise rather than decline further
Summary
A subject which has received the attention of thinkers and researchers in the 21st Century is the growing economic inequality in most parts of the globe. According to early thinking in Development Economics, inequality first increases when, an economy embarks upon the modern development process, but later declines as development level crosses a certain threshold This pattern seemed to bear out the experience in western industrialised countries in the 19th Century and the better part of the 20th Century. With cross-country longitudinal data are becoming available since the 1970s, a counterargument to the growth-equity trade-off started to emerge Using these data, Todaro and Smith (2013) contested Kuznets’ hypothesis by showing that per capita income is not necessarily related to inequality. What these shreds of evidence establish with certainty is that a trade-off between equity and growth is not inevitable
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