Economy Kushay's Matter Bank

[AK] Declining Income Inequality VS Fast Economic Growth

This note will discuss the trade-off between income inequality and a fast overall economic growth, using the case study of Sierra Leone (a country in West Africa).

Sierra Leone’s 2002 civil war recovery was mainly done through rural-based agriculture, not urban-driven industrialization unlike many other countries in Africa and Asia.

The impacts of it is that people living in rural areas (Sierra Leone’s majority) obtained better access to educational and healthcare services, while urban areas failed to grow as quick. Thus, the difference of consumption in rural and urban areas fell by roughly half. Inequality in urban areas also fell as the growth rate of the capital is being caught up by the other districts.

This has been proven with the Gini coefficient (ranging from 0 that means complete equality and 1 that means one person consumes everything) of Sierra Leone is 0.31. Nigeria and South Africa which has an urbanization rate five times higher than Sierra Leone, on the other hand, has a Gini coefficient of 0.47 and 0.66, respectively.

This strategy has downsides, however, with roughly 50% of Sierra Leone’s population living below poverty line. But the trade-off here is clear; sometimes, strategies that cause rapid income growth causes that income to only be concentrated on a small fraction of people and vice versa.

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