Abstract

The essence and major objective of socioeconomic development is raising the standard of living of all individuals and particularly that of the poor. ¹ It has become almost universally accepted that in the setting of low-income third world countries economic growth is a necessary condition for poverty reduction. A crucial issue in this context is whether a relatively unequal income distribution is also a precondition for growth to occur. This was the prevailing view under the classical framework, based on the argument that the rich (the capitalists) save a larger proportion of their income than the poor (the workers). Hence, for a given level of total income a more unequal income distribution would generate a larger flow of aggregate savings that could be channeled into investment to yield a higher growth rate of GDP.