1. Development Economics Inequality in Growth Models
4/17/2017
Development Economics Inequality in Growth Models
Jinjie Cui (Eric)
Friedrich Schnitzler
Faculty of Economics, University of Warsaw
8th December, 2008
J.Cui & F.Schnitzler
08/12/2008

2. The planning for today
1. Definition of inequality The Lorenz curve
2. Causes of inequality Perfect inequality
- Kuznets curve
3. Evolution of inequality Perfect equality
4. Effects of inequality Properties of the Lorenz curve
5. Mitigating factors for inequality 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
J.Cui & F.Schnitzler
08/12/2008

3. 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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4. 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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5. Kuznets curve
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6. 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.
J.Cui & F.Schnitzler
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7. 4. Effects of Inequality Credit-Market Imperfections Political Economy
Sociopolitical Unrest
Saving Rates
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8. 5. Mitigating factors for inequality
Public education
Progressive taxation
Minimum wage
Subsidization
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9. 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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10. The Lorenz curve J.Cui & F.Schnitzler J.Cui & F.Schnitzler 08/12/200810

11. 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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12. 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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13. 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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14. 9. Properties of 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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15. 10. Problems of the Lorenz curve
The Lorenz curve is just a graphical presentation of facts or distributions.
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16. 11. The Gini coefficient J.Cui & F.Schnitzler J.Cui & F.Schnitzler
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17. 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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18. 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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19. 12. Statistics for Gini coefficients
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20. Statistics for Gini coefficients
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21. 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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22. 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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23. 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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24. Effects of Inequality on Growth and Investment
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25. 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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26. 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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27. J.Cui & F.Schnitzler
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28. 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 credit- market 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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29. 14. Determinants of Inequality
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30. 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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31. Source:
Journal:
[1] Barro, Robert J. “Inequality and Growth in a Panel of Countries.” Journal of Economic Growth 5: 5-32 (2000)
Internet:
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32. Questions??? Thank you for your time!!! J.Cui & F.Schnitzler
08/12/2008