With references choose the correct answer and discuss with concrete examples:
If the development process is characterized by what we have called "modern sector
enlargement", the relationship between GNP per capita and inequality in the distribution of
income can be expressed as
a. a strictly decreasing relationship b. a strictly increasing relationship c. no relationship d.
first increasing and then decreasing
The correct answer is a. a strictly decreasing relationship.
In a modern sector enlargement, the development process leads to the growth of industries and sectors that have higher productivity and higher wages. As a result, there is an increase in the GNP per capita of the country.
However, this growth is not evenly distributed among the population. The modern sector typically employs a smaller proportion of the population, while the traditional sector, characterized by lower productivity and lower wages, continues to employ a larger proportion.
This unequal distribution of income leads to increased inequality. The GNP per capita increases while the inequality in income distribution also increases. As a result, the relationship between GNP per capita and inequality in the distribution of income is strictly decreasing.
Concrete example:
Let's consider a hypothetical country that experiences modern sector enlargement. The country's economy primarily relies on agriculture and low-skilled industries. However, with development, new high-tech industries emerge, attracting skilled workers and offering higher wages.
As these new industries grow and contribute to the country's GNP per capita, the wages of skilled workers increase, leading to a rise in their income. At the same time, the traditional sector, which employs a large proportion of low-skilled workers, experiences slower wage growth.
As a result, the income gap between skilled and low-skilled workers widens, leading to increased inequality in the distribution of income. Therefore, we observe a strictly decreasing relationship between GNP per capita and inequality in the distribution of income.