Income Distribution and Ineqality-Trends in Bangladesh

Topics: Economic inequality, Economics, Gini coefficient Pages: 17 (5447 words) Published: December 12, 2012
The subject of economic growth and equitable distribution of income of any country is an economically important one. The fulfillment of economic development in each country is based on achieving two goals, including fairly rapid economic growth and income distribution in society. More growth and better distribution is not possible at the same time-some economist argued. So it needs to make trade-off. The issue of growth and income distribution is very much concerns to the economist and it is still a controversial issue of compatibility and non-compatibility between the goals of economic growth and income distribution. Income distribution in Bangladesh is worsening for the last two decades. The gap between the rich and poor people’s consumption changes. In this paper, it will be reviewed and explained the recent trends in income distribution in Bangladesh following the theories and as well as broader empirical evidence in the first part. Then, it will show the relationship in between these two major issues of Macroeconomics. In the second part, it will show the relationship between income distribution and growth scenario in some of developing countries. Finally, concluding remarks will be made to focus the whole idea.
The Concept of development started as economic growth. In the centre development was meant to be rapid growth of per capita income. While, in 1960s a change came when people began to raise question, where the growth itself is an adequate measure of development. And immediate concern of the time was distribution of income across the population. It was observed, from experience in a number of developing countries in the 50s and 60s, that was, although the development is taking place in quite a respectable pace in some of the countries, this growth was being accompanied by very unequal, in fact worsening income distribution. It meant, most of the benefits of the growth were going to the small number of this people and the poor were not benefitting much from it. So the gap between rich and poor was widening. Income distribution become came into central place of discussion in economics. So, the question that became or the idea came along that the growth with equity. Not only growth we should also call for more equal distribution of income. Rapid growth with better income distribution ideally demanded, but the question arisen that practically is it possible, as market economy is working? So, rapid economic growth and better income distribution is not possible at the same time.

In many developing countries, recent upsurge in growth has been accompanied by rising inequality even as poverty has declined, and Bangladesh is no exception in this regard (Milanovic 2005, Goldberg and Pavcnik 2007, Khan 2005, Bhattacharya and Khan 2008). The traditional viewpoint about the relationship between income distribution and economic growth suggests that income distribution has no significant effect on macroeconomic activities and economic growth.  The observed relationship between inequality and economic growth was interpreted as capturing the effect of the growth process on the distribution of income rather than the effect of the distribution of income on the growth process.  This viewpoint, as exemplified by the representative agent approach to macroeconomics, has dominated the field of macroeconomics and economic growth till late 1980s. This traditional viewpoint had been challenged in the last decade. Theories and subsequently empirical evidence have demonstrated that income distribution has a significant impact on the growth process. In the 1990s, the classical view that distribution (one aspect of which is measured by inequality indices) is not only a final outcome, but in fact plays a central role in determining other aspects of economic performance, has come back into fashion under increasing scrutiny. Income distribution plays an important role in the determination of aggregate economic...
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