Why is the Kuznets curve inverted?

By Ritesh|Updated : September 1st, 2022

Due to the early rise in income inequality, the Kuznets curve is inverted as per capita income rises. Even though the income per capita keeps rising after a particular stage of economic development, the income disparity declines. The Kuznets curve is, therefore, inverted.

Explanation of Kuznets Inverted Curve Hypothesis

A Kuznets curve illustrates how and when market forces and income change as an economy grows. Simon Kuznets, an economist, created the Kuznets curve in the 1950s and 1960s.

  • The Kuznets curve demonstrates how a country's economic center will move toward urban areas as it goes through industrialization.
  • The rural population will decline, and the urban population will rise as farmers migrate to their communities in search of higher-paying work in metropolitan centers.
  • Inequality is anticipated to decline once the average income has been established and industrialization is well underway.
  • As inequality rises and falls with an increase in income, according to Kuznets, it will take the shape of an inverted "U."
  • Although the variables along the axes are frequently mixed and matched, Kuznets curve diagrams depict an inverted U curve, with economic progress, time, or per-capita incomes on the X-axis and inequality or the Gini coefficient on the Y-axis.

Summary:

Why is the Kuznets curve inverted?

The Kuznets curve is inverted due to the early increase in income disparity as per capita income increases. After a given stage of economic development, the income difference reduces even though the income per capita keeps increasing. The Kuznets curve is consequently turned around.

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