Kuznets Curve

The Kuznets Curve is a graph used in economics that says that as an economy develops, market forces first cause a rise in the economic inequality, then closes the gap in economic inequality. Economist Simon Kuznets first propounded this hypothesis in the 1950s and 1960s. A justification for this kind of a progression is that early on in the development stage of an economy, investment opportunities increase for those who possess money, and the arrival of cheap rural labour into the urban areas would suppress wages. In mature economies, physical capital accrual is replaced by human capital accrual as the main growth source. Inequality lowers the rate of growth by dropping educational levels since poor and disadvantaged people do not have the necessary finance for their education in inadequate credit markets.

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