What Is Kuznets Curve: An Economist’s Definition
The Kuznets curve is a hypothetical curve that graphs economic inequality against income per capita over the course of economic development (which was presumed to correlate with time). hypothesis about the behavior and relationship of these two variables as an economy develops from a primarily rural agricultural society to an industrialized urban economy.
Kuznets’ Hypothesis
In the 1950s and 1960s, Simon Kuznets hypothesized that as an economy develops, market forces first increase then decrease the overall economic inequality of the society, which is illustrated by the inverted U-shape of the Kuznets curve. For instance, the hypothesis holds that in the early development of an economy, new investment opportunities increase for those who already have the capital to invest. These new investment opportunities mean that those who already hold the wealth have the opportunity to increase that wealth.