Development and Inequality

Deininger and Squire in their article, A New Data Set Measuring Income Inequality, investigate the relationship between growth and the Gini coefficient from their new data set to test the Kuznets hypothesis. They find no support for the Kuznets hypothesis. The purpose of this paper is to use the Gini coefficients from Deininger and Squire’s data set to once again assess the empirical validity of the Kuznets hypothesis, not by considering the relationship between the economic growth and the Gini coefficient as they do, but instead by looking at the relationship between economic development, as measured by per capita GNP, and the Gini coefficient. It is our contention that the spirit of the Kuznets hypothesis is that there is an inverted u relationship between development and inequality. Once the focus is on the relationship between development and inequality and an appropriate measure of development is employed, it is our contention that data from Deininger and Squire’s new data set will lend support to the Kuznets hypothesis.