Since the 1990s, poverty rate worldwide has been halved from 43% to 21% in 2010. More than a billion people in the developing world have been lifted out of poverty (Economist, 2013). Most of the growth was driven by China and India which have lifted 716 million people put of poverty. This 'economic miracle' has been unprecedented and represents an opportunity for developing country to achieve economic development.
However, as these countries have grown stupendously, another concerned have emerged among policy makers and economists. Countries, regardless of developing or developed countries are facing greater income inequality. Even countries such as Finland and Denmark which are know to be egalitarian, have seen an increase in income inequality. Sweden, meanwhile, have seen the steepest increase in measure of inequality among 34 OECD countries (OECD, 2011).
On the other hand, 4 out of 5 of Asia most populous countries -India, China, Bangladesh and Indonesia- have seen income inequality gone up since 1990s (Asian Development Bank, 2012). This is a bigger issue for developing countries as effects of inequality can have major implications on economic development. Developing countries around the world have an objective of increasing income levels or GDP, reducing poverty and increasing living standards measured by social indicators such as literacy rate, schooling years, and life expectancy. The efforts to reach these objectives are then hampered by increasing income inequality.
I will explore the relationship between income inequality and economic development by looking at three channels on how income inequality might do so. The three channels are impact of inequality on economic growth, poverty and socio-politics.
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Income inequality has been and will forever continue to be a highly discussed topic in society. As a social experiment, income equality has historically failed. The adage from the communist era “from each according to his ability; to each according to his needs,” ran counter to human nature and experience. On balance, there are positive aspects to unequal income which include; its success in creating a more educated work force, competition among people to succeed and more stimulated productivity, which do not always, but tend to balance out any negative impacts such as; concentration of wealth, social consequences and outsourcing, that it may have.
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Unlike the North – a term in vogue today, among others, for highlighting the difference between the rich, industrialised nations of mostly Western Europe, North America, Australasia, and the rudimentary economies of Latin America, Asia and Africa – underdevelopment, characterised by low income levels, poverty, low living standards and other socio-economic ills seem to be a defining feature of countries in these regions, collectively described as the Global South. Thomas (2003), Hershberg and Moreno-Brid(2003), and, Solimano(2005) suggest, for instance, that the socio - economic structure of most Latin American countries remains defined by vast inequalities in income and wealth distribution, poverty, volatile growth, high mortality rate and a high level of economic vulnerability. In Asia, a number of countries including the large economies of India and China have made improvements in the 21st century in terms of reducing poverty. Yet, 22% of the developing countries in Asia live on a dollar a day . The situation is bleaker in the South and Southeast Asia region where 38% leave on less than a dollar a day and over 48% of the population living below the regions individual country poverty line . Likewise, absolute poverty is on the rise in Africa - generally recognised as the world’s richest continent in terms of natural resources - despite a recorded decline in global poverty rates (Bhattacharyya: 2005).
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There is a lot to learn about inequality. If you ask a sociologist about inequality they will tell you that the nature of society
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Inequality as previously mentioned is a subject that gets debated when brought up and in any debate there is two sides. In class we have discussed both side of the story of inequality, and it has give me a better perspectives of income inequality. When discussion income inequality, we brought up the concept of the economic pie in which states that the economic pie is a reference to the way income gets distributed among the lower, middle, and higher class of America. So the concept of the economic pie states that the rich is getting richer, so they are
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