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The Kuznets curve: determinants of its shape and the role of finance

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  • Tobias F. Rötheli
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    Abstract

    Purpose – This paper aims to study the importance of initial resource endowments, the savings rate, and financing opportunities for growth and the distribution of income. Design/methodology/approach – The analysis is based on a theoretical model of accumulation and applies simulations. The frame of presentation is the so-called Kuznets curve. Findings – The paper shows under what circumstances the inverted U-shaped curve hypothesized by Kuznets emerges and clarifies the role of a functioning capital market for economic growth and the distribution of income. It turns out that when initial income disparities are high and the savings rate is low it cannot be taken for granted that economic growth leads to a more equal income distribution. The paper further shows that with an efficient capital market total income rises faster and further and inequality is always lower than without a functioning capital market. Research limitations/implications – Future research should help to identify the institutional and regulatory frameworks that promote a stable basic financial infrastructure. Originality/value – By drawing on the concept of a hydraulic society the interplay of key factors that drive economic growth and income inequality can be clarified.

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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal Studies in Economics and Finance.

    Volume (Year): 28 (2011)
    Issue (Month): 2 (June)
    Pages: 149-159

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    Handle: RePEc:eme:sefpps:v:28:y:2011:i:2:p:149-159

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    Related research

    Keywords: Distribution of wealth; Economic growth; Finance;

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    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June.
    2. Henry Tam, 2008. "An economic or political Kuznets curve?," Public Choice, Springer, vol. 134(3), pages 367-389, March.
    3. Georg R. G. Clarke & Lixin Colin Xu & Heng-fu Zou, 2006. "Finance and Income Inequality: What Do the Data Tell Us?," Southern Economic Journal, Southern Economic Association, vol. 72(3), pages 578-596, January.
    4. Thorsten Beck & Asli Demirgüç-Kunt & Ross Levine, 2007. "Finance, inequality and the poor," Journal of Economic Growth, Springer, vol. 12(1), pages 27-49, March.
    5. Peter L. Rousseau & Paul Wachtel, 2011. "What Is Happening To The Impact Of Financial Deepening On Economic Growth?," Economic Inquiry, Western Economic Association International, vol. 49(1), pages 276-288, 01.
    6. Levine, Ross, 2005. "Finance and Growth: Theory and Evidence," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 12, pages 865-934 Elsevier.
    7. Gene M. Grossman & Alan B. Krueger, 1994. "Economic Growth and the Environment," NBER Working Papers 4634, National Bureau of Economic Research, Inc.
    8. Ram, Rati, 1989. "Level of Development and Income Inequality: An Extension of Kuznets-Hypothesis to the World Economy," Kyklos, Wiley Blackwell, vol. 42(1), pages 73-88.
    9. Banerjee, Abhijit V & Duflo, Esther, 2003. " Inequality and Growth: What Can the Data Say?," Journal of Economic Growth, Springer, vol. 8(3), pages 267-99, September.
    10. Barro, Robert J, 2000. " Inequality and Growth in a Panel of Countries," Journal of Economic Growth, Springer, vol. 5(1), pages 5-32, March.
    11. Huang, Ho-Chuan (River) & Lin, Shu-Chin, 2007. "Semiparametric Bayesian inference of the Kuznets hypothesis," Journal of Development Economics, Elsevier, vol. 83(2), pages 491-505, July.
    12. Asli Demirguc-Kunt & Ross Levine, 2009. "Finance and Inequality: Theory and Evidence," NBER Working Papers 15275, National Bureau of Economic Research, Inc.
    13. Sukiassyan, Grigor, 2007. "Inequality and growth: What does the transition economy data say?," Journal of Comparative Economics, Elsevier, vol. 35(1), pages 35-56, March.
    14. van Schilfgaarde, Jan, 1994. "Irrigation -- a blessing or a curse," Agricultural Water Management, Elsevier, vol. 25(3), pages 203-219, July.
    15. Stephen Dobson & Carlyn Ramlogan, 2009. "Is There an Openness Kuznets Curve?," Kyklos, Wiley Blackwell, vol. 62(2), pages 226-238, 04.
    16. Deininger, Klaus & Squire, Lyn, 1998. "New ways of looking at old issues: inequality and growth," Journal of Development Economics, Elsevier, vol. 57(2), pages 259-287.
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