An alternative check of the validity of Kuznets' hypothesis

Abstract

This study investigates whether the Kuznets curve relationship is supported by using another proxy of economic development as applied to developing countries. Using data from 17 countries with 154 subnational regions for the year 2000, inequality is measured using a Gini coefficient based on the possession of assets. The proxy used for economic development is occupational structure, which is measured in two ways: as the percentage of employed men working in the (1) lower or (2) upper non-agricultural sector. Other influences on income inequality are also taken into account, while the parametric approach includes corrections for multicollinearity. The estimation results support the original Kuznets curve relationship. The effects are higher for upper non-agricultural occupations than for lower non-agricultural occupations. However, these findings are not robust with respect to variations in control variables and interaction terms. When adding control variables and interaction terms, the expected signs were found, but only the quadratic term remains significant. Some control variables, such as urbanization and education, have a significant effect on inequality. No interaction term has a significant effect. From a policy perspective, the results support the need for locally targeted coordinated efforts to address the problems of literacy and to increase connections between rural and urban areas.