In one paper, written by Mr. Robert J. Barro of Harvard, he notes that in less developed countries higher inequality tends to slow growth down, whereas in more developed countries it encourages growth. (1) It can be explained by the simple fact that if the difference in income between college graduates and non-graduates is high, then more people are likely to attend universities with the hope that a college degree can ensure a stable life for them (Hakura et al. 8). What’s even more interesting, is that, according to Kuznetsov, inequality naturally rises as an economy moves towards the higher development, and then it naturally decreases as the same economy becomes highly developed. (Barro, 8) High-income inequality where rich get richer and poor get poorer lead to a situation where there’s high civil unrest. The poorest engage in criminal activities, riots, and other acts of crime effectively destabilizing social and political situation of a country. This way introduced laws are less certain to remain laws in the future. No logically thinking foreign investor wants to invest in a country which has an unstable political and social scene, but also, because of riots, any property is endangered, which all comes down to the fact that the level of foreign direct investments gets lower. In the end, it all leads to slower growth (Barro).
Perhaps we could just leave countries as they are, and let them be. After all, growth naturally eases disproportions in incomes. Does it always, however? Let’s take a look at Nigeria. Between years 2003 – 2009, Nigerian economy grew from around 67 billion dollars (expressed in current US$) to around 169 billion dollars (expressed in current US$). While the economy grew, the income share of the bottom 20% of the Nigerian society decreased – from 5.7% in 2003 to 5.4% in 2009. When we look at the top 20%, their income share has increased from 46% to 49%. GINI coefficient has also increased from 40.1 to 43.0 (World Bank). When we take an even closer look and analyze the situation in the country with the capital in Abuja. The money the richest man in Nigeria is making in a single year would suffice to lift 2 million fellow Nigerians out of poverty for one year (“Nigeria: Extreme Inequality in Numbers.”). Even more – “the combined wealth of Nigeria’s five richest men - $29.9 billion – could end extreme poverty at a national level yet 5 million face hunger” (“Nigeria: Extreme Inequality in Numbers.”). Simplifying or not, this data is not wrong. While some are billionaires, some live on less than $2.5 a day. Even though this data is only about one country it tells us that not always does the economic growth reduces disparities in earnings among the people.
Bibliography
“Africa Human Development Report 2016.” UNDP, 28 Aug. 2016, www.undp.org/content/undp/en/home/librarypage/hdr/2016-africa-human-development-report.html.
Barro, Robert J. “Inequality and Growth in a Panel of Countries.” Scholar.harvard.edu, 1999, doi:10.18411/a-2017-023.
“Focus on Inequality and Growth - December 2014.” Oecd.org, 27 Apr. 2018, www.oecd.org/social/Focus-Inequality-and-Growth-2014.pdf.
Gandhi, Dhruv. “Figures of the Week: Diverging Trends on Income Inequality in Sub-Saharan Africa.” Brookings, Brookings, 28 Sept. 2017, www.brookings.edu/blog/africa-in-focus/2017/09/28/figures-of-the-week-diverging-trends-on-income-inequality-in-sub-saharan-africa/.
Hakura, Dalia, et al. Inequality, Gender Gaps and Economic Growth: Comparative Evidence for Sub-Saharan Africa . IMF, 2016, Inequality, Gender Gaps and Economic Growth: Comparative Evidence for Sub-Saharan Africa , www.imf.org/external/pubs/ft/wp/2016/wp16111.pdf.
Kwasi, Augustin. Growth, Inequality, and Poverty in SubͲSaharan Africa: Recent Progress in a Global Context. Centre for the Study of African Economies, 2014, Growth, Inequality, and Poverty in SubͲSaharan Africa: Recent Progress in a Global Context.
Marx, Karl. “From Population, Crime and Pauperism.” New-York Tribune, 16 Sept. 1859.
“Nigeria: Extreme Inequality in Numbers.” Famine and Hunger Crisis | Oxfam International, Oxfam International, www.oxfam.org/en/even-it-nigeria/nigeria-extreme-inequality-numbers.
Sayeh, Antoinette. “3 Ways for Africa to Tackle Inequality and Boost Growth.” World Economic Forum, World Economic Forum LLC, 18 Nov. 2015, www.weforum.org/agenda/2015/11/3-ways-for-africa-to-tackle-inequality-and-boost-growth/.
“UNDP Launches Study on Income Inequality in Sub-Saharan Africa.” UNDP - United Nations Development Programme, UNDP, 21 Sept. 2017, www.undp.org/content/undp/en/home/presscenter/pressreleases/2017/09/21/undp-launches-study-on-income-inequality-in-sub-saharan-africa.html.
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