THE KUZNETS PROCESS AND THE INEQUALITY DEVELOPMENT RELATIONSHIP

In his classic paper on economic growth and income inequality, Kuznets discussed the process of population shift from traditional to modern activities as the basis for a theory of distributional change during the course of development. In this paper, we present a formalization of the Kuznets process, conduct a general analysis of distributional change under this process, and derive the functional forms of, and conditions for a turning point in, the inequality-development relationship for six commonly used indices of inequality. The functional form appropriate to each index is then estimated using cross-section data on 60 developing and developed countries. Finally, some extensions to the initial formalization of the Kuznets process are considered.