The Relationship Between Economic Growth and Inequality: Evidence From the Age of Market Liberalism

Abstract

RESUMENMediante un panel de países selectos, este artículo muestra que la relación desigualdad-crecimiento sigue una forma de U durante el periodo 1970-98, en el cual la desigualdad inicialmente decrece y posteriormente se incrementa con el crecimiento económico. La evidencia también muestra que este patrón creciente puede revertirse a mayores niveles de ingreso. Usando series de tiempos se ilustra que varios países presentan un punto mínimo en diversos años a lo largo del periodo, mientras que otros siguen una tendencia positiva permanente. Adicionalmente se observa que, un pequeño grupo de países revierte la tendencia de desigualdad creciente a niveles altos de ingreso y despliegan un punto máximo a finales del periodo. Estos países están asociados con estabilidad macroeconómica, eficiencia gubernamental y expansión ABSTRACTUsing a panel data set of selected countries, this paper shows that the inequality-growth relationship follows an ordinary-U curve during the period 1970-98, in which inequality first decreases and then rises with economic growth. In addition, there is some evidence that the increasing pattern may reverse at higher levels of income. A time-series approach shows that a substantial group of countries capture a minimum turning point in different years along the period and others follow a permanent positive trend. It also indicates that only a few countries reverse inequality in a latter stage and display a maximum turning point after the mid 1990s; these countries are associated with macroeconomic stability, high governance and moderate expansion of trade and FDI. Hence, the inequality-growth relationship during the era of market openness has tended to change towards a positive one, although it might reverse at a later stage. JEL classification: C22, C23, O15, O57

Inequality and Economic Growth: An Analysis of 8-Panels

“…The authors argued that the transfer of workers' savings to capitalists raises the aggregate savings of the economy which in turn contributes positive to the growth of the economy. Despite the high number of literature on the nexus between inequality and economic growth (Angeles-Castro, 2006;Barro, 2000;Cingano, 2014;Galbraith, 2012;Heyse, 2006;Jihè ne & Ghazi, 2013;Tabassum & Majeed, 2008;Wahiba & El Weriemmi, 2014), there have been inconsistencies in empirical findings in developed, emerging and developing countries. The discussion paper of Bagchi and Svejnar (2015) suggests that wealth inequality, initial poverty and income inequality do not affect economic growth.…”