Is Inequality an Inevitable Consequence of Economic Development?

A core belief in development economics is that inequality will increase initially as economic development proceeds. This belief was widely shared by development economics in the 1960s and 1970s, and was informed by the work of the Nobel Laureate Simon Kuznets who postulated that as economic development proceeds, inequality of income within a country first increases, and then decreases – the well-known Kuznets Curve. This view was also reflected in Mahbub Ul Haq’s initial thinking as an economic planner in Pakistan. In this paper, we ask: is inequality a necessary consequence of economic development? We look at the cross-country evidence on the relationship between inequality and economic development, and find that the evidence is mixed, with no clear pattern both across and within countries. We then discuss selected examples of countries where inequality did not rise with successful economic development. We conclude by arguing that there is no mechanical relationship between inequality and economic development, and governments can enact policies that can lead to strong economic growth with no accompanying increase in inequality.