Rational Asymmetric Development, Piketty and the Spirit of Poverty in Africa

2015 African Governance and Development Institute WP/15/006

34 Pages Posted: 14 Mar 2015

See all articles by Simplice Asongu

Simplice Asongu

African Governance and Development Institute

Date Written: March 13, 2015

Abstract

The study extends the implications of Piketty’s celebrated literature from developed countries to the nexus between developed nations and African countries by building on responses from Rogoff (2014) & Stiglitz (2014), post Washington Consensus paradigms and underpinnings from Solow-Swan & Boyce-Fofack-Ndikumana. The central argument presented is that the inequality problem is at the heart of rational asymmetric development between rich and poor countries. Piketty has shown that inequality increases when the return of capital is higher than the growth rate, because the poor cannot catch-up with the rich. We argue that, when the return of political economy (or capitalism-fuelled illicit capital flight) is higher than the growth rate in African countries, inequality in development increases and African may not catch-up with the developed world. As an ideal solution, Piketty has proposed progressive income taxation based on automatic exchange of bank information. The ideal analogy proposed in tackling the spirit of African poverty is a holistic commitment to fighting illicit capital flight based on automatic exchange of bank information. Hence, contrary to theoretical underpinnings of exogenous growth models, catch-up may not be so apparent. Implications for the corresponding upward bias in endogenous development and catch-up literature are discussed.

Keywords: Piketty, Inequality, Foreign aid, Capital flight, Development

JEL Classification: B20; F35; F50; O19; O55

Suggested Citation

Asongu, Simplice, Rational Asymmetric Development, Piketty and the Spirit of Poverty in Africa (March 13, 2015). 2015 African Governance and Development Institute WP/15/006. Available at SSRN: https://ssrn.com/abstract=2577730 or http://dx.doi.org/10.2139/ssrn.2577730

Simplice Asongu (Contact Author)

African Governance and Development Institute ( email )

P.O. Box 8413
Yaoundé, 8413
Cameroon

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