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Unformatted text preview: #14,15,16 Inequality + Dev. 1 Inequality and development pp.115-144 “Inequality Matters” Nancy Birdsall. (Pp.115-130) Why globalization doesn’t lift all boats. ► Textbook economics says: Inequality is likely to enhance growth by concentrating income among the rich, who save and invest more. Against tax-financed redistribution Not focused on growing inequality but rather on reductin of absolute poverty ► Nancy Birdsall says: East Asia’s success is do to low initial levels of inequality Inequality can be constructive in rich countries, motivating individuals to work hard, innovate, etc. (Constructive= creates positive incentives at the micro level and reflects differences in individuals’ responses to equal opportunity) Inequality is destructive in developing countries (Destructive=privileges for the already rich, lack of equal opportunity) ► Why destructive inequality limits economic growth in developing countries o Markets Inequality in wealth limits productive investment in small farms, businesses, education and health because poorer creditworthy borrowers cannot borrow because they lack collateral. Inequality in social mobility is associated with differences public spending on primary education and depth of financial market Land inequality and unequal access to education is bad for growth because they create poor markets for land and credit. o Institutions/education Governments are weak, they rarely compensate market failure, and if they do its through inadequately funded, poorly managed public systems; Inequality makes strengthening institutions harder because there is no strong middle class to demand accountability from governments. #14,15,16...
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- Fall '09
- Poverty, inequality Inequality