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

Listed author(s):
  • Tobias F. Rötheli
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    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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    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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    1. Henry Tam, 2008. "An economic or political Kuznets curve?," Public Choice, Springer, vol. 134(3), pages 367-389, March.
    2. 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.
    3. 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.
    4. 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.
    5. 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.
    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, 1995. "Economic Growth and the Environment," The Quarterly Journal of Economics, Oxford University Press, vol. 110(2), pages 353-377.
    8. van Schilfgaarde, Jan, 1994. "Irrigation -- a blessing or a curse," Agricultural Water Management, Elsevier, vol. 25(3), pages 203-219, July.
    9. Asli Demirgüç-Kunt & Ross Levine, 2009. "Finance and Inequality: Theory and Evidence," Annual Review of Financial Economics, Annual Reviews, vol. 1(1), pages 287-318, November.
    10. 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.
    11. Banerjee, Abhijit V & Duflo, Esther, 2003. "Inequality and Growth: What Can the Data Say?," Journal of Economic Growth, Springer, vol. 8(3), pages 267-299, September.
    12. Barro, Robert J, 2000. "Inequality and Growth in a Panel of Countries," Journal of Economic Growth, Springer, vol. 5(1), pages 5-32, March.
    13. 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.
    14. Stephen Dobson & Carlyn Ramlogan, 2009. "Is There an Openness Kuznets Curve?," Kyklos, Wiley Blackwell, vol. 62(2), pages 226-238, 04.
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