What Is an Equity Curve?

Kuznets curve, also known as inverted U curve, Kuznets inverted U curve hypothesis. The curve of income distribution as a function of economic development proposed by American economist Simon Smith Kuznets in 1955 is an important concept in development economics.

Kuznets curve

Simon Smith Kuznets proposed an inverted u-shaped curve hypothesis on the relationship between economic development and changes in income gap based on speculation and experience. Kuznets' analysis of the relationship between economic growth and income inequality is based on the transition from the traditional agricultural industry to the modern industrial industry. He believes that the process of industrialization and urbanization is the process of economic growth, in which the distribution gap will trend.

The Kuznets curve shows that at the beginning of the economic development process, especially when the national per capita income rose from the lowest to the middle level, the income distribution situation first deteriorated, then gradually improved with the economic development, and finally reached a fairer level. The income distribution status of U.S. is in the shape of an inverted U. The Y axis represents

Paukert adopted empirical research in 56 countries with different levels of development in the 1970s.

Links to economic and social development

Inverse U curve of income distribution

The Kuznets curve was first proposed by Simon Kuznets, a famous American economist and Nobel Laureate in Economics in 1971, in a 1955 speech by the American Economic Association. After analyzing the empirical data on economic growth and income gap in 18 countries, he concluded that the long-term trajectory of income distribution is "deterioration, then improvement", or in his own words, "the long-term trend of income inequality can be The hypothesis is: The economic growth during the transition from pre-industrial civilization to industrial civilization expanded rapidly in the early stages, followed by a short period of stability, and then gradually decreased in the later stages of growth. "And he concluded by comparing the cross-section data of some countries. Developing countries that are in the early stages of development have higher income inequality than developed countries that are in the later stages of development. Appearing in the figure is a curve that bends up first and then bends down, and looks like an inverted U, so people call it an "inverted U curve". After the speech was published, there was a heated discussion in the world economics community. Some people said that the inverted U relationship has gained the power of economic laws and some people said that the trajectory of income distribution in economic development has no natural 'economic law' to follow. ". According to later studies, almost all country cross-section data support the inverted U curve. Since the 1980s, China has entered a stage of continuous growth of the national economy. At the same time, the income gap of residents has entered a period of continuous expansion, and there is a trend of further expansion. So far, the correlation between China's economic growth and income gap is basically consistent with the inverted U curve. Our basic judgment is that China's income gap is still on the left of its rising period and has not reached the stagnation point.

On the basis of the income distribution Kuznets curve, we can also derive other Kuznets curves for economic and social development.

Related inverted U curve in the secondary industry

That is, during the transition from an agricultural society to an industrial society or from a traditional society to a modern society, the proportion of the output value of the secondary industry and the proportion of labor force showed an upward trend at the beginning of the industrial society. When the per capita GDP reached a certain level, the proportion of the output value of the secondary industry

Kuznets curve builds evolution of transportation development model

And the proportion of labor will decline. According to the general experience of industrialized countries, when the per capita GDP reaches about 1,000 US dollars and the proportion of the output value of the secondary industry reaches about 50%, the inflection point of the inverted U curve is reached. In the more than 50 years since the founding of the People s Republic of China, the proportion of the output value of the secondary industry in China has continued to rise, from 20.9% in 1952 to 52.3% in 2003. Our basic judgment is that after this high level stabilizes for a certain period of time, it will gradually decrease. The proportion of output value will exceed that of the secondary industry. The share of employment in the secondary industry increased from 7.4% in 1952 to 23.7% in 1997. The subsequent years showed a downward trend year by year, and in 2003 it was 21.6%. Our basic judgment is that the proportion of the labor force in the secondary industry passed the stagnation point and entered the right side of the inverted U curve, which is on the right side.

Inverted U curve of regional economic development

That is, in the process of industrialization, due to the different geographical advantages of different regions, different endowments of resources, and great differences in economic foundations, various production factors must be transferred and accumulated to regions with high average profit rates, leading to disparities in the level of economic development between regions. enlarge. When the level of industrialization in developed regions reaches a certain level, due to its dripping effect and diffusion effect, the average profit rate will decrease due to the increase in the price of production factors in developed regions, and the advantage of low cost of production factors in less developed regions will gradually emerge. Coupled with government guidance, factors of production will shift to less developed regions, promote economic growth, and narrow the development gap between regions. In the 1980s and 1990s, the gap between China s regions, especially between the eastern and western regions, in terms of economic aggregates and economic growth rates increased significantly, and it was clearly on the left side of the inverted U curve. Since the implementation of the strategy of developing the western region, economic growth in the western region has accelerated. Although the total amount is still increasing, the economic growth rate is decreasing, entering the right side of the inverted U curve.

Inverted U curve of environmental pollution

That is, in the process of industrialization, with the increase of per capita GDP, the degree of environmental pollution will show an upward trend; with the further increase of per capita GDP, the degree of environmental pollution will decline year by year. From the perspective of China's environmental pollution, according to statistical data, the emissions of the three wastes, such as waste water, waste gas and waste residue that have not been treated or failed to meet the standards, have been on the rise. Our overall judgment is that environmental pollution is still on the left side of the inverted U curve, and there is a certain distance from the inflection point.