Poverity and Development PPT(Balemlay Addis).pdf
- 1. Article Review Montek Ahluwalia Journal of Development Economics (Jan1977) Title: "Inequality, Poverty and Development" Course Title: Poverty and development Debre Markos University College of Business and Economics Department of Economics JUN-2024 BALEMLAY ADDIS ID -DMU/152797
- 2. Table of contents 01 Introduction Income inequality 02 Inequality, Poverty and Development 1.Examination of Kuznets' Hypothesis 2. Income Distribution and Economic Structure 03 Socialist Countries 04 The absolute impoverishment hypothesis 06 Conclusions 05 Growth and inequality The short-term relationship 07 Policy Recommendation
- 3. Inequality, Poverty and Development Socialist Countries Growth and inequality: The short-term relationship The absolute impoverishment hypothesis • This paper aims to explore this relationship using cross-country data on income inequality. Exploring the Relationship Between Income Inequality and Development Introduction 01
- 4. Income Inequality Sample of • 60 countries • 40 developing countries • 14 developed countries • 6 socialist countries Data: • Lack of historical time series data for most developing countries. • Cross-country analysis can only establish associations, not causal mechanisms. . Limitations: • Use multivariate regression to estimate relationships between income shares and development indicators. • Treat the resulting "stylized facts" as empirical patterns that need further theorization and testing. Approach: • Suggest hypotheses about the underlying causal mechanisms. • Examine the relationship between inequality and the rate of growth, and draw policy implications. Goals:
- 5. Is there a relationship between income inequality and economic development levels across countries? Does data support the Kuznets hypothesis of an inverted U-shaped relationship? Research question What factors beyond development level are correlated with income inequality in countries? What other stylized facts can be established about correlates of inequality? What are the implications of observed relationships between inequality and development for absolute impoverishment of lower income groups? Is there a relationship between income inequality and economic growth rates across countries? What potential policy implications arise from this relationship?
- 6. Inequality, Poverty and Development 02 1.Examination of Kuznets' Hypothesis 2. Income Distribution and Economic Structure 1.Population Growth and Inequality 2. Education and Labor Skills 3.Intersect oral Shifts
- 7. 1. Kuznets Hypothesis on Inequality Turning Points: Occur at different per capita GNP levels for different income groups. Consistency: Pattern observed in both full sample (60 countries) and restricted sample (40 developing countries). Variations: Slight differences in the shape of the U-curve between samples. Limitations of the Kuznets Curve •Limited Explanatory Power: • Relationship between inequality and development is more complex than the Kuznets curve suggests. • Per capita GNP alone cannot capture all underlying mechanisms. • Need to explore other correlates of inequality. Objective: Test Kuznets hypothesis using cross-country regressions on income shares vs. per capita GNP. Findings: U-shaped Pattern: Substantial support for Kuznets' inverted U-shaped curve.
- 8. 1.Population Growth and Inequality 2.Education and Labor Skill Positive correlation between education metrics (literacy, secondary enrolment) and equality. Education having a significant impact on income shares, with secondary schooling benefiting middle-income groups and literacy benefiting low-income groups.. 2 Income Distribution and Economic Structure High population growth linked to greater income inequality Top 20% benefit, other groups (except lowest 20%) negatively impacted Differential growth rates across income groups contribute to inequality Increased labour supply pressures other factors, exacerbating inequality Concentrated land ownership impacts savings and public investment, affecting inequality. Improving by: Shifting towards skilled labour, leading to higher incomes, reduced skill gaps, and increased wage share in output. Skill-intensive development being less prone to income concentration compared to capital-intensive patterns.
- 9. • Intersect oral shifts play a significant role in the relationship between development and inequality. • Shift from low-income agricultural sector to high- income non-agricultural sectors. • Initial increase in relative inequality during early stages of development. • U-shaped pattern of inequality observed. Regression analysis shows association between interpectoral shifts and U-shaped pattern. Implications: The U-shaped inequality pattern is more closely tied to rising per capita incomes than just intersect oral shifts alone. Further research with more comprehensive data is needed to fully disentangle these dynamics. 3.Intersect oral Shifts
- 10. Socialist Countries 03 • Socialist countries in the sample display significantly greater income equality • Likely due to absence of dis equalizing effect of concentrated property. • income Equality in socialist countries also partly explained by: • Faster expansion of education • Lower population growth rates • Limitations: • Unable to directly measure impact of asset ownership concentration • Complex institutional/political factors not fully captured.
- 11. The absolute impoverishment hypothesis 04 hypothesis of absolute impoverishment in early development is rejected Expansion of modern sector does not lead to prolonged absolute decline in poor incomes Average absolute income increases with per capita GNP Development does not cause widespread absolute impoverishment Detailed analysis needed to understand income distribution dynamics within smaller groups
- 12. Growth and inequality: The short-term relationship No significant relationship between inequality and growth rate Policy focus should be on transition speed and inequality, not just growth rate Further analysis needed on types of growth and their distributional impacts 05 Short-term relationship between growth and inequality is complex High growth rates do not necessarily lead to increased inequality Temporary income gaps during growth not linked to long-term structural factors
- 13. • Factors don't fully explain earlier inequality deterioration • No evidence of prolonged absolute impoverishment during development • Faster growth does not systematically lead to higher inequality • The complexity of development requires nuanced analysis and country-specific policies to address inequality and poverty. • Findings provide insights on development, inequality, and poverty • Relative inequality increases early but reverses in later development stages • Shifts in production, education, and population growth reduction improve distribution. Conclusion 06
- 14. Policy Recommendation 07 5. International Cooperation: Developed countries and international organizations should support developing countries through financial aid, technical assistance, and fair trade practices to address global income inequality. 1. Early and Sustained Interventions: Implement progressive taxation, social safety nets, and invest in education and healthcare to reduce income inequality early in the development process. 2. Targeted Support for Lower-Income Groups: Provide direct financial support, access to quality education, and job creation programs tailored to low-income populations. 3. Monitoring and Adjustment: Continuously monitor income distribution trends and be prepared to adjust policies in response to changing economic conditions and emerging data on income inequality. 4. Inclusive Growth Strategies: Prioritize inclusive growth strategies that ensure the benefits of economic growth are widely shared across all segments of society