Globalization, Economic Development and Inequality

Globalization, Economic Development and Inequality

An Alternative Perspective

New Horizons in Institutional and Evolutionary Economics series

Edited by Erik S. Reinert

The expert contributors gathered here approach underdevelopment and inequality from different evolutionary perspectives. It is argued that the Schumpeterian processes of ‘creative destruction’ may take the form of wealth creation in one part of the globe and wealth destruction in another. Case studies explore and analyse the successful 19th century policies that allowed Germany and the United States to catch up with the UK and these are contrasted with two other case studies exploring the deindustrialization and falling real wages in Peru and Mongolia during the 1990s. The case studies and thematic papers together explore, identify and explain the mechanisms which cause economic inequality. Some papers point to why the present form of globalization increases poverty in many Third World nations.

Chapter 11: Convergence, Divergence and the Kuznets Curve

Ådne Cappelen

Subjects: economics and finance, evolutionary economics, welfare economics

Extract

Ådne Cappelen The study of economic growth has again become a major area of interest for both applied and theoretical economics. This chapter relates some of these developments to the empirical study of economic growth focusing on Europe. My main concern is with the distribution of income over time, not only between countries but also between regions within countries. I discuss the link between income levels and the distribution of income of individuals as depicted by the Kuznets curve (Kuznets 1955). The empirical convergence literature (see Abramovitz 1986, Baumol 1986) suggests that incomes of the richest countries in the world seem to converge, but this is not the case for the world as a whole. Barro (1991) and many subsequent studies based on an explicitly neoclassical growth model have shown that if one controls for differences in factor accumulation, countries seem to converge at the same rate but to different steady state levels of income. Thus conditional convergence is taking place. However, the distribution of income levels between regions in a steady state is not made explicit in most of these latter studies. In this chapter I first illustrate the changes in the dispersion of income between most of those countries in Europe which today are members of the European Union. I use long historical time series of gross domestic product (GDP) per capita, relying on Maddison (1995) in order to show that there have been periods of convergence as well as divergence in incomes among these countries....

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