Developmental Economics: Relationship Between Growth And Inequality

Developmental Economics is a relatively young discipline in the field of study, it has only recently been taken into serious consideration and was founded in the latter half of the 20th Century. One could say, although this is quite an oversimplification, that the main goal of Developmental Economics is to quantify a way to induce growth. Not just among the developed nations either, as focus shifted towards economics in the world at large. Using its capacity for intelligence, humanity has always tried to improve its standing in the world and to find ways to make the world a better place for itself. Through science, engineering, medicine, we have invented many disciplines to cover all aspects of our lives. Through economics we aim to create

This originated from the Kuznets study where Kuznets compared his data on numerous countries and he showed that, among developing economies, those poor nations with low growth have a greater amount of equality than those middle-income nations with higher growth. So stemmed the view that there are trade-offs between growth and equality. Many economists have argued that, logically, if countries re-distribute wealth and capital among the population then it will be stretched too thin and savings and investments for future capital, and thus growth, would drop. Whereas if the wealth and capital were concentrated on a smaller minority, they will have greater control and ability to save and invest. According to them, redistributive policies which attempt to create equality can harm a nation’s ability to grow. But we cannot rest our theories on basic logic, we must go deeper. As Economists have taken data, compiled it, and studied it, some have seen that quite a few variables in their models suggest a negative relationship between equality and growth. Lundberg and Squire (2003) have analyzed their models of choice, they have found earlier that growth and inequality are interlinked and when they further analyzed this connection they saw that in some cases there is a necessary tradeoff between growth and equality. “These results show that equality possibly adversely influences growth (at the 10% significance level). The remaining variables in the growth equation do not change. Growth, on the other hand, has a statistically strong and adverse effect on inequality.” (p. 336). Other economists have supported this view that growth can increase inequality, and the view remains strong among their