Data Bases • Custom Term Papers • Free Term Papers • Free Research Papers • Free Essays • Free Book Reports • Plagiarism? Links • Top 100 Term Paper Sites • Top 25 Essay Sites • Top 50 Essay Sites • Search 97,000 Papers @ DirectEssays.com • Search 101,000 Papers @ ExampleEssays.com • Search 90,000 Papers @ MegaEssays.com Free Essays • Term Paper Sites • Chuck III's Free Essays • Free College Essays • TermPaperSites.com • My Term Papers • Get Free Essays • Essay World • Planet Papers	Search Lots of Essays Back to Subjects - Economics INCOME DISTRIBUTION AND GROWTH IN LDC8217S INCOME DISTRIBUTION AND GROWTH IN LDC8217S In recent years, one of the major concerns of economic development is the study of poverty, the income distribution and growth in the less developed countries (LDC’s) or Third World countries. Economists from all over the world have been doing researches and studies on how to induce a growth in those underdeveloped countries. However, countries differentiate in historical backgrounds, cultural believes and natural resources. As a result, the government would implement different strategies to attain a much fairer distribution of income among the society. The relationship between the income distribution and growth in the LDC’s is a significant factor that would affect government policies. Also, the study of the strategies, promoted from the government, would show us how the government can enable economic growth with a more equal income distribution. INCOME DISTRIBUTION AND ECONOMIC GROWTH For years, most of the more developed countries have been helping the less developed countries. Most of them believed that the only solution to the problem of poverty is to make the GDP grow. However, some other questions may arise as to who would make it grow, and should they be the few or the many. If it is the many who need to make it grow, then the GDP may be shared more equally. On the other hand, in order to make the GDP rise, we need to make decisions in production. The Production Possibility curve can show us the maximum amounts an economy can produce, but it doesn’t tell us which decision would be made. A country makes the decision on what to produce is accordance to the income distribution. The most ideal case is to have perfect income equality (Gini Coefficient equal to 0) in one society. However, studies tell us that this can never be reached. In most of the more developed countries, a Gini Coefficient (G.C.) of 0.2 to 0.35 is considered to be in relative equality. One may wonder what is the G.C. in the less developed countries? The answer is assumed to be a number in the higher rank. In fact, in most LCD’s, the G.C. is about 0.5 to 0.7 or even higher. This shows us that the problem of income inequality is very seriously in those countries. “We were taught to take care of our GNP as this will take care of poverty. Let us reverse this and take care of poverty as this will take care of poverty.” Poverty became the key problems in the late 1960s and early 1970s. Those who are concerned with the “well-beings of the poor in developing countries eventually paid special attention to the effects of development policies on the poor and also introduce policy measures that are specifically designed to help them directly.” There are many ways to deal with the problem of income distribution. The major concern of the policies would be the approach to provide human basic needs (HBN) for each and every one of the people in the country. In nearly all of the LDC’s, majority of the people are living under absolute poverty. This means that they are not able to provide a standard level of living for themselves. Different policies to improve the income inequality and also procure an economic growth include land reform, redistribution of saving and investment, education for all, progressive taxation, public expenditures from tax revenues and birth control. Some people think that there existed a trade-off between growth and equity. They think that distributing income too equally would undermine incentives and thus lower everyone's income. They believed that the rich needed special encouragement to save and invest more in order to cause a growth in the economy. Recent evidence suggests that this conventional wisdom is wrong. Many economies in Asia - Hong Kong, Indonesia, Malaysia, the Republic of Korea, Singapore, Taiwan (province of China) and Thailand - have had both rapid growth and relatively low inequality. “Between 1960 and 1993 the East Asian economies, excluding China, had annual per capita growth of 7.6%, while income inequality remained stable or declined. Japan and Sweden have also combined rapid growth and low inequality.” These are important findings, since they contradict the conventional view that it is better to channel income to the rich, who tend to save and invest more. Therefore, we can say that a more equal income distribution would have a positive effect on the economy and in fact it help the economy to grow better. With an equal income distribution, improvements are made to economic development from this overall effect. First, income equality acts as the main incentive for a rapid growth in the development. If there are huge differences between the rich and the poor, the poor may not be motivated to work more because they won’t get equitable pays. Studies have already showed that the low income of the poor leads to low productivity. Therefore if a large proportion of national income are distributed to only the rich people, then the production would be distorted even to a worsen level. Thus, achieving an equal income distribution is very important to the economic growth of the country. Second, it stimulates the economy by improving the purchasing power in the economy. If unequal distribution of income exists, the people with high purchasing power are concentrated in the elites that form less than one percent of the population. In fact, the rich in less developed countries do not necessarily save and invest locally much of their income. Therefore, this will narrow down the real purchasing power within a country. Third, a more equal distribution of income changes the composition of demand towards more labor-intensive products - and this stimulates both growth and employment. If the income range can be narrowed between the highest-paid and the lowest-paid public-sector worker, then more employment opportunities would be created. In most of the underdeveloped countries, the output of productivity is mainly in primary production of agricultural products. “Most of the people are lack of professional skills and this is the major reason for keeping the country away from quick economic development.” In fact, “a country’s economic growth may be defined as a long-term rise in capacity to supply increasingly diverse economic goods to its population, this growing capacity based on advancing technology and the institutional and ideological adjustments that it demands.” People believed third world countries need intermediate technologies-- something which is supposed to be more labor-intensive and more suited to the needs of the developing countries than the technology presently used in the developed world. However, even in developed countries, such perfect technology could not be easily found. Thus, this is not the solution for the underdeveloped countries which are still receiving aids from the more developed countries. In order to have economic development, government needs to decide on how to achieve a growth in the country. “If a high growth rate is achieved through rising military expenditures, or through the production of luxury goods for the rich and the rich and the privileged, it is not necessarily better than a lower growth rate which is more evenly distributed.” In other words, judgments about different levels of growth rates cannot be made independently of the income distribution implicit in them. It is not merely a question of how much is produced, but of what is produced and how it is distributed. We can determine the choice by income distribution and enable an economic growth as a result. Another way to lead to economic growth is to eliminate the malnutrition, disease, illiteracy, squalor, unemployment and inequalities. The social indicators must be developed and the progress of plans must be measured in terms of specific and quantitative goals in these fields and not in terms of average per capita income. Also, government should put more concerns on production and better distribution should be brought together and not treated separately. This invariably means that employment should be treated as a primary, not secondary, objective of development since it is the most powerful means of redistributing income in a poor society. “Capital should not be concentrated in a small modern sector, enjoying high productivity and savings, but spread thinly over a wide segment of the economy-through public works programs, if necessary, and even at the risk of lowering the average productivity of labour and lowering the future rate of growth.” The poor societies have to face this choice squarely. They have a limited amount of capital. They can either raise substantially the productivity of a small part of the labour force in the modern sector while leaving a large part unemployed or settle for a lower average productivity but full employment. Although relatively slow, but these definitely can lead to a continuous economic growth to the country. In conclusion, there are lots of possible government policies which can help to improve the economy in developing countries. The government in LDC’s should put the strategies on lowering the inequality of income distribution and also lowering the unemployment and underemployment rate within the country. A relatively equal income distribution can lead to many positive notes such as increase in productions, employments, and indirectly increase the local investments. Increase in productions, employments and capitals in the country thus enable a growth in the economy and therefore, the government should make careful decisions keeping in mind that of the impact these factors have on the societies. Bibliography: Judith Randel and Tony German., The Reality of Aid 1998/1999, UK:Earthscan Publications Ltd., 1998 Adelman and Morris: Economic Growth & Social Equity in Developing Countries, California: Stanford University Press.,1973 David Dembo, Clarence Dias, Ward Morehouse, James Paul: The International context of Rural Poverty in the Third World, Newyouk: Council on International and Public Affairs, Inc., 1986 Jacques Lecaillon, Felix Paukert, Christian Morrisson, Dimitri Germidis. Income Distribution and economic development,French:International Labour Organisation., 1984 Gary S. Fields. Poverty, Inequality, and Development, New York: Cambridge University Press.,1980 Michael P. Todaro. Economic Development, New York: Longman.,1994 Simon Kuznets. Population Capital & Growth, New York: W.W. Norton & Company. Inc.,1973 Word Count: 1557
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