The Kuznets curve: determinants of its shape and the role of finance
AbstractPurpose – 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 InfoArticle provided by Emerald Group Publishing in its journal Studies in Economics and Finance.
Volume (Year): 28 (2011)
Issue (Month): 2 (June)
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Find related papers by JEL classification:
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
- O43 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
- P12 - Economic Systems - - Capitalist Systems - - - Capitalist Enterprises
- Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment
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