Rational Asymmetric Development, Piketty and Poverty in Africa

The European Journal of Comparative Economics, 13(2), pp. 221-246 (December, 2016)

African Governance and Development Institute WP/16/040

37 Pages Posted: 12 Oct 2016 Last revised: 24 Dec 2016

See all articles by Simplice Asongu

Simplice Asongu

African Governance and Development Institute

Jacinta Nwachukwu

Coventry University

Date Written: March 12, 2016

Abstract

An April 2015 World Bank report on the Millennium Development Goal poverty target has revealed that extreme poverty has been decreasing in all regions of the world with the exception of Africa. This study extends the implications of Thomas Piketty’s celebrated literature from developed countries to the nexus between developed nations and African countries by building on responses from Rogoff (2014) and Stiglitz (2014), post Washington Consensus paradigms and underpinnings from Solow-Swan and 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 on capital is higher than the growth rate, because the poor cannot catch-up with the rich. We argue that when the return on political economy (or capitalism-fuelled illicit capital flight) is higher than the growth rate in African countries, inequality in development increases and Africa 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 comprehensive commitment to fighting illicit capital flight based on this. 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 and Nwachukwu, Jacinta, Rational Asymmetric Development, Piketty and Poverty in Africa (March 12, 2016). The European Journal of Comparative Economics, 13(2), pp. 221-246 (December, 2016); African Governance and Development Institute WP/16/040. Available at SSRN: https://ssrn.com/abstract=2850872

Simplice Asongu (Contact Author)

African Governance and Development Institute ( email )

P.O. Box 8413
Yaoundé, 8413
Cameroon

Jacinta Nwachukwu

Coventry University ( email )

Priory Street
Coventry, CV1 5FB
United Kingdom

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