INEQUALITY & THE DEVELOPMENT OF A COUNTRY

How can inequality undermine the development of a country?

How can inequality undermine the development of a country?

Introduction

The theme of the relationship between inequality and economic growth has gained considerable attention among economists over the last two decades. In this paper, we analyze the effect of inequality on growth, whose related literature has been producing inconclusive results. The disparities found in the results of the estimation of the reduced-form relationship are most likely due to three dimensions: differences in the estimation techniques, the countries and the periods included in the sample, and the variable used to measure inequality. The last two aspects have particularly important implications.

First, country/region specificities play a crucial role in the relationship between inequality and growth, so more emphasis should be put on the estimation of such a relationship on a national/regional basis, rather than trying to establish universal patterns. Second, the time horizon of the analysis should be carefully chosen, as different transmission channels from inequality to growth tend to operate differently in the short and in the long-run.

Third, the fact that inequality in wealth distribution has a stronger negative effect on growth than inequality in income distribution may indicate that the channels through which inequality affects growth are not the same in both distributions. Therefore, we argue that in order to produce an accurate assessment of both the reduced-form relationship and the underlying transmission channels these aspects should be accordingly considered, which has not been the case in most of the empirical literature.

Discussion

In order for a country to develop, it is essential for the country to be running on a system in which every individual has rights to his/her basic rights and to the fundamentals that he/she deserves. It is imperative for every individual to be in a position where he/she does not have to fight in order to claim his/her basic rights. In essence, it is imperative for the country to incorporate inequality. This is even more important for countries that are underdeveloped and are in the need for development.

It is important to note that the necessity of equality for the development of a country is two elements that are mutually reliant. This is because of the fact that when a country strives to promote equality and struggles to ensure the same amongst the masses, it tends to set out on a process that allows it to develop as it moves along. It would not be incorrect to state in this regard that the development of a country can be expected to bear fruit in the form of the assurance of equality (Liu 2010). Any development that takes place without the incorporation of equality cannot be expected to be sustainable in nature since the absence of equality renders the country incapable of sustaining the development. Hence, after one point, the development that apparently takes place tends to back fire and the country enters a downward spiral. An example of this can be observed in the form of most ...