Inequality and Economic Growth

Paper Summary:

This paper discusses whether inequality is necessary for economic growth to occur. It questions whether, in low development countries, economic growth is the result of equal distribution of income and if per capital income must reach a minimum level before income inequality decreases. The paper also looks at whether countries of unequal income distributions experience slower growth than more "equal" countries. Additionally, the paper discusses whether governments should be implementing policies of redistribution in order to aid the poor.

Table of Contents:
Introduction
Common Questions & Models
Global Data - Inequality Distribution Issues
Deinger and Squire: The Third and Arguably Most Important Question
Other Macroeconomic Research
A Microeconomic Model
Conclusion

From the Paper:

"One would aim for the more optimistic view that equality and economic growth are compatible, because the current global state of regional poverty is a major problem, with no clear end in sight. This impresses an importance on determining a state whereby economic growth is possible alongside a simultaneous increase in the fortunes of the world's poor. However, researchers who have viewed the issue from afar tend to conclude that "the empirical evidence of the positive impact of greater equality on efficiency is still inconclusive" (Sharpe, 2003, p. 13). In other words, it may be naive to assume equality and economic growth is possible, particularly considering that much economic growth occurs in today's world based on the global phenomenon of inequality. However, researchers also conclude that "equally, there is little conclusive evidence of major negative effects on efficiency from equality" (ibid, p. 13), meaning that a relationship between economic growth and equality may be possible. It is up to further research to determine how this can be implemented in policy."

Sample of Sources Used:

• Altman, M. (2003). Economic Growth and Income Equality: Implications of a Behavioural Model of Economic Growth for Public Policy. Canadian Public Policy, XXIX, Supplement Special, pp. 87-118.
• Deininger, K. and Squire, L. (1996). Economic Growth and Income Inequality: Reexamining the Links. World Bank. Retrieved April 10, 2007 from http://www.worldbank.org/fandd/english/0397/articles/0140397.htm.
• Lloyd-Ellis, H. (2003). On the Impact of Inequality on Productivity Growth in the Short and Long Term: A Synthesis. Canadian Public Policy, XXIX, Supplement Special, pp. 65-86.
• Lustig, N., Arias, O. and Rigolini, J. (2002). Poverty Reduction and Economic Growth: A Two-Way Causality. Washington, DC: Inter-American Development Bank. Sustainable Development Department Technical Papers Series, pp. 1-16.
• Sharpe, A. (2003). Linkages Between Economic Growth and Inequality: Introduction and Overview. Canadian Public Policy, XXIX, Supplement Special, pp. 1-14.

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