The study has focused on the income inequality which is mostly witnessed in the developing and emerging markets. From the study, policymakers are duty board to formulate policies which would enhance equal distribution of the income thus ensuring balanced regional development. The study has also focused on the factors that contributes to the unequal distribution of income such as reduction in the labor market institutions and technological progress. Analysis of GPD per capita, population and GPD growth rate for the developed and developing countries. The study has concluded that income inequality has great effect on the economic growth of the country. Income inequality also has impacts on per capita income on the organization.
Income inequality describes the gap between the rich and poor people at its highest level (Knowles, 139). Income inequality is mostly witnessed in developing and emerging mar
...kets. The degree of inequality, drivers of inequality and the actions to be taken against them are the major elements of debate by researchers and policymakers (Knowles, 139). In this case policymakers focus on middle class and poor people since inequality in income distribution matters for both growth and sustainability. Therefore, distribution of income solely matters for growth. Precisely, if income share for rich people increase, the country’ economic GDP definitely declines in the short to medium term.
In contrast, if distribution of income for poor people increases, the growth of country’s GDP increases (Gupta, 26). The reasons why income inequality reduces the rate of economic growth is that, its redistribution is accompanied by progressive structure of income tax which greatly affects the incentives. This in return reduces investments hence reduce the work efforts. Also those with high
incomes saves more than those with low incomes hence redistribution reduces rate of savings hence reducing investment and growth (Gupta, 31).
According to Knowles, (137), some of the factors that contribute to income inequality in both advanced and growing countries may include decline in number of labor market institutions leading to increased unemployment and technological progress causing many employee lay-offs. Other studies shows that no need to remedy income inequality as this violates Pareto principle of welfare optimization and works against the function of social welfare which supports increase of income of rich people therefore the income distribution problem does no amount to inequality but poverty (Gupta, 31).
Research questions
- What is the relationship between income inequality and economic growth?
- What is the relationship between income inequality and per capita income?
Research hypothesis
- There is no significant relationship between income inequality and economic growth?
- There is no significant relationship between income inequality and per capita income?
The purpose and Location of study
The purpose of the study was to reveal the importance that equal income distribution have on the economic growth of the country and its effect on per capita income. The results of the study are indented to be used by the governments to formulate policies that enhances equal distribution of income within an economy. The location of the study was a wider range of both developed and developing countries and whose economy is unstable.
Data analysis and presentation
The gap between the GNP per capita in evolved a developing countries is increasing widening. In the last 40 years, the difference in average income in rich nations and poor nations have grown more than doubled with the most wealth nation having
above thirty times the poorest nation (Barham, 66). A few years later, out of total worlds GDP, only less than twenty two percent was generated by the developing countries which consists of above 85 percent world’s population (Barham, 137). The mean growth data for evolving countries shows increased disparities among them. Between 1990-1999, pacific and East Asia GPD per capita have grown fast (Kuznets, 14). In the same duration Sub-Saharan Africa experienced the negative GDP growth. At that time Central Asia and Europe suffered the biggest GDP drop. The average GDP, population and Per capita income between developing and developed countries are shown in the figure below.
In the developing countries, growth rate GDP are averagely more than that of developed countries. For the period d between 1965- 1999, low-income countries experienced GPD growth rate of 4.1%, the GDP growth rate for middle-income nations is 4.2% while that of high-income countries was 3.2% (Kuznets, 21).
Conclusion
The study concludes that inequality in income distribution has great effect on the economic growth of the country. This inequality in income distribution leads to unbalanced regional developments. The study concluded that factors such as reduction in the number of labor market players thus increasing unemployment levels and technological progress which causes a lot of lay-offs by companies thus leaving many people unemployed.
Work Cited
- Knowles, Stephen. "Inequality and economic growth: the empirical relationship reconsidered in the light of comparable data." The Journal of Development Studies 41.1 (2005): 135-159.
- Barham, Bradford, and Stephen Boucher. "Migration, remittances, and inequality: estimating the net effects of migration on income distribution." Journal of development economics 55.2 (1998): 307-331.
- Gupta, Sanjeev, Hamid Davoodi, and Rosa Alonso-Terme. "Does corruption
affect income inequality and poverty?" Economics of governance 3.1 (2002): 23-45.
