INCOME INEQUALITY AND INDUSTRIAL-DEVELOPMENT - DUALISM REVISITED

I argue that the inverted-U shaped relationship between income inequality and development (Kuznets curve) is largely accounted for by transitional development processes related to the dualism (both economic and generalized) of traditional and modern sectors of developing societies. Whereas Kuznets identified the central role of sector dualism in the evolution of income inequality I identify generalized sociocultural dualism as a second critical factor. Regression analyses based on 56 countries circa 1970 show that the curvilinearity of the inequality-development relationship is captured by a core model involving three processes: the spread of education, the demographic transition and generalized dualism, and labor force shifts and sector dualism. These three processes are represented in regression models by four variables that have significant effects on inequality in directions predicted by the core model: (1) secondary school enrollment (negative effect), (2) natural rate of population increase (positive effect), (3) sector dualism (positive effect), and (4) percent labor force in agriculture (negative effect). In general, the effects of variables that have been previously proposed as causes of income inequality vanish or are attenuated in the presence of this core model.