Contemporary issues in development finance Essay - 1

Contemporary issues in development finance - Essay Example Income inequality is described as the uneven distribution of individual or household income/earnings across the several participants in the economy. It is the sign of how the material resources are generally distributed across the society. High degree of earnings/income inequality is considered as undesirable. Measures of the earnings inequality relies on the data of disposable income of the household. The key indicator of earnings distribution is employed in ‘Gini coefficient’. The values of Gini coefficient scope between 0 (in perfect equality case) and 1 (in perfect inequality case). Poorer countries generally have elevated level of income inequality (Oecd, 2011). The main purpose of this paper is to empirically examine the connection between the financial growth and the income inequality by taking the example of Vietnam from the period 2000-2008. In the previous two decades, country like Vietnam has applied various economic and social reforms in order to encourage economic growth. The entrance of Vietnam into ‘World Trade Organisation’ in the year 2006 has concerned large inflows of foreign capital under the projects of foreign direct investment. Free trade and market-oriented financial system helped in releasing the capabilities and potentials of enterprises and individuals. Due to this, the economy achieved efficiency, higher productivity, and economic growth (C.M. Hoi and L.Q. Hoi, 2012). The connection between financial progress and the income inequality is a searched topic lately. Till now, two strings of notion, of which one pursue linear hypothesis and other follows non-linear hypothesis, are under exploration for the empirical evidence. Linear hypothesis: An overlapping model has been offered by Galor and Zeira (1993), who concentrated on the significance of the investment of human capital. They believe that there exist two sectors in