Inequality, Economic Growth and Development

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This is an updated revision presentation covering aspects of inequality and economic growth/development - it is designed for Year 13 A2 macro students

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Inequality, Economic Growth and Development

  1. 1. Inequality, Economic Growth and Development
  2. 2. Kuznets and Income Inequality
  3. 3. Real Income Growth in the USA
  4. 4. Top Decile Income Share in USA
  5. 5. A Global Perspective The vertical axis shows changes in real income between 1988 and 2008, measured in 2005 international dollars, i.e. adjusted for inflation and how the cost of things varies in different countries The horizontal axis divides the incomes of the world into percentiles
  6. 6. A Global Perspective 60m or so people who constitute the world’s top 1 per cent The vertical axis shows changes in real income between 1988 and 2008, measured in 2005 international dollars, i.e. adjusted for inflation and how the cost of things varies in different countries The horizontal axis divides the incomes of the world into percentiles
  7. 7. A Global Perspective The vertical axis shows changes in real income between 1988 and 2008, measured in 2005 international dollars, i.e. adjusted for inflation and how the cost of things varies in different countries 60m or so people who constitute the world’s top 1 per cent New global middle class, particularly in China and India. In 2008 earning median income would put the average Chinese in the top half of the global income distribution The horizontal axis divides the incomes of the world into percentiles
  8. 8. We now live in a world with a bulge around the median with significantly rising incomes for the entire second third (or more) of the global income distribution. That is the new aspiring global middle class. We also see growing wealth and probably power of those at the very top and, remarkably, stagnant incomes for both the people just below the “enchanted” richest 1 or 5 per cent, and those poorest in the world. Source: Milosevic, World Bank, 2013 A Global Perspective
  9. 9. Professor Angus Deaton Inequality is a knotty subject. There is little agreement on what ought to be equal. Should it be a measurable outcome such as income or wealth; a hazier outcome such as power or freedom; or a vague aspiration such as “equality of opportunity”? It is often said that the world is becoming more unequal. But it is less than clear what is meant by that. Income inequality between countries has grown over the past three centuries but it may now be narrowing between the world’s people as a whole. (FT 11-10-13)
  10. 10. Tax system is now less progressive Cognitive elites and rising premium incomes Monopoly rent seeking – power elites Root Causes Of Systemic market failures e.g. education / housing Regressive effects of high inflation Patchy nature of state welfare systems Widening urban-rural income divide
  11. 11. Tax system is now less progressive Cognitive elites and rising premium incomes Monopoly rent seeking – power elites Root Causes Of Systemic market failures e.g. education / housing Regressive effects of high inflation Patchy nature of state welfare systems Widening urban-rural income divide
  12. 12. Tax system is now less progressive Cognitive elites and rising premium incomes Monopoly rent seeking – power elites Root Causes Of Systemic market failures e.g. education / housing Regressive effects of high inflation Patchy nature of state welfare systems Widening urban-rural income divide
  13. 13. Tax system is now less progressive Cognitive elites and rising premium incomes Monopoly rent seeking – power elites Root Causes Of Systemic market failures e.g. education / housing Regressive effects of high inflation Patchy nature of state welfare systems Widening urban-rural income divide
  14. 14. Tax system is now less progressive Cognitive elites and rising premium incomes Monopoly rent seeking – power elites Root Causes Of Systemic market failures e.g. education / housing Regressive effects of high inflation Patchy nature of state welfare systems Widening urban-rural income divide
  15. 15. Tax system is now less progressive Cognitive elites and rising premium incomes Monopoly rent seeking – power elites Root Causes Of Systemic market failures e.g. education / housing Regressive effects of high inflation Patchy nature of state welfare systems Widening urban-rural income divide
  16. 16. Tax system is now less progressive Cognitive elites and rising premium incomes Monopoly rent seeking – power elites Root Causes Of Systemic market failures e.g. education / housing Regressive effects of high inflation Patchy nature of state welfare systems Widening urban-rural income divide
  17. 17. Tax system is now less progressive Cognitive elites and rising premium incomes Monopoly rent seeking – power elites Root Causes Of Systemic market failures e.g. education / housing Regressive effects of high inflation Patchy nature of state welfare systems Widening urban-rural income divide
  18. 18. Branko Milanovic, World Bank economist and expert on trends in global inequality “Half of one’s income depends on the average income of the country in which that person was born.” “8% of humanity takes home 50% of global income; the top 1% alone takes home 15%.”
  19. 19. Some countries have made progress The richest 300 people on earth have more wealth than the poorest 3bn - almost half the world's population
  20. 20. Rising inequality 2:32:17 PM
  21. 21. Inequality in developing countries
  22. 22. Economic Effects of Rising Inequality Social unrest and civil disobedience • Strikes and demonstrations over poor pay and conditions at Fox con in China which produces IPhones and IPads Self-perpetuating poverty cycle • Limited access to health care and education • Volatile incomes, high debts • Low savings Misallocation of scarce resources Capital investment skewed towards preferences of the rich Low collateral – limits entrepreneurship Capital flight by the rich
  23. 23. Hon Hai Precision Industry The company started in the 1980s in Shenzhen, near Hong Kong Now Fox Conn has half a million workers at inland factories and half a million at factories on China’s eastern coast including Shenzhen.
  24. 24. Economic Effects of Rising Inequality Social unrest and civil disobedience • Strikes and demonstrations over poor pay and conditions at Fox con in China which produces IPhones and IPads Self-perpetuating poverty cycle • Limited access to health care and education • Volatile incomes, high debts • Low savings Misallocation of scarce resources Capital investment skewed towards preferences of the rich Low collateral – limits entrepreneurship Capital flight by the rich
  25. 25. Economic Effects of Rising Inequality Social unrest and civil disobedience • Strikes and demonstrations over poor pay and conditions at Fox con in China which produces IPhones and IPads Self-perpetuating poverty cycle • Limited access to health care and education • Volatile incomes, high debts • Low savings Misallocation of scarce resources Capital investment skewed towards preferences of the rich Low collateral – limits entrepreneurship Capital flight by the rich
  26. 26. Extreme Poverty Source: http://www.worldbank.org/content/dam/Worldbank/document/Poverty%20documents/inequality-in-focus-october2013-v12.pdf
  27. 27. Poverty Reduction Pathways Source: http://www.worldbank.org/content/dam/Worldbank/document/Poverty%20documents/inequality-in-focus-october2013-v12.pdf
  28. 28. Inequality Reduction Strategies Human Capital Investment • Improving school enrolment rates • Improving the quality of teaching Inclusive Growth Policies • Raising incomes for people • Conditional cash transfers as welfare Micro-Finance • Small scale loans, gender empowerment • Micro-insurance to help poorest farmers
  29. 29. Poverty Reduction Strategies Human Capital Investment • Improving school enrolment rates • Improving the quality of teaching Inclusive Growth Policies • Raising incomes for people • Conditional cash transfers as welfare Micro-Finance • Small scale loans, gender empowerment • Micro-insurance to help poorest farmers
  30. 30. Inequality Reduction Strategies Human Capital Investment • Improving school enrolment rates • Improving the quality of teaching Inclusive Growth Policies • Raising incomes for people • Conditional cash transfers as welfare Micro-Finance • Small scale loans, gender empowerment • Micro-insurance to help poorest farmers
  31. 31. Inequality Reduction Strategies Human Capital Investment • Improving school enrolment rates • Improving the quality of teaching Inclusive Pro-Poor Growth Policies • Conditional cash transfers as welfare • Productivity improvements in rural industries Micro-Finance Economic growth by itself is only weakly correlated with poverty reduction. Ravallion (2004) found that a 1% increase in per capita incomes can reduce income • Small scale loans, gender empowerment poverty by as much as 4% or by less than 1%, depending on the country as well as • Micro-insurance to help poorest well as the the time period. Clearly the pattern of growth matters as farmers pace
  32. 32. Inequality Reduction Strategies Human Capital Investment • Improving school enrolment rates • Improving the quality of teaching Inclusive Pro-Poor Growth Policies • Conditional cash transfers as welfare • Productivity improvements in rural industries Micro-Finance • Small scale loans, gender empowerment • Micro-insurance to help poorest farmers
  33. 33. Shared Prosperity Shared prosperity is defined as “fostering income growth of the bottom 40 per cent of the population in every country” (World Bank, 2013).
  34. 34. Poverty Reduction Strategies “There is probably no silver bullet, one needs to learn from experience what has worked and what has not worked, and what problem what solutions can and cannot fix.” Esther Duflo, author of Poor Economics
  35. 35. Cost of Inducing Extra Education De-worming and poverty reduction One billion people in the world are infected with worms; yet there is cheap, easy mass treatment This provides a cheap way of achieving an extra year of education especially in primary schools
  36. 36. Addressing rural poverty is key Source: http://siteresources.worldbank.org/EXTPREMNET/Resources/EP125.pdf
  37. 37. Stiglitz on Inequality I see us entering a world divided not just between the haves and have-nots, but also between those countries that do nothing about it, and those that do. Some countries will be successful in creating shared prosperity — the only kind of prosperity that I believe is truly sustainable. Others will let inequality run amok. In these divided societies, the rich will hunker in gated communities, almost completely separated from the poor, whose lives will be almost unfathomable to them, and vice versa. I’ve visited societies that seem to have chosen this path. They are not places in which most of us would want to live, whether in their cloistered enclaves or their desperate shantytowns. http://opinionator.blogs. nytimes.com/2013/10/1 3/inequality-is-a-choice/
  38. 38. Two Economists on Inequality
  39. 39. Recommended Structure One Main Point/Argument per paragraph Questions Requiring Evaluation Analyse / Build Connectives Examine To what extent Use Supporting Examples & Evidence Then evaluate the actual point made Evaluate Discuss Assess
  40. 40. Get help for unit 4 from fellow students, teachers and tutor2u on Twitter: #econ4 @tutor2u_econ

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