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Income Inequality and Economic Growth

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  • Mo, Pak Hung

Abstract

We develop an analytical framework to investigate some plausible channels that income inequality affects economic growth. Our empirical study concludes that income inequality has significant negative effect on the rate of GDP growth. Among the channels suggested by recent literature, we find that the most important one is the transfer channel while the least important one is the human capital channel. However, the direct impact of income inequality on the rate of productivity growth accounts for more than 55 percent of its overall total effect. This indicates that the effects of income inequality on economic growth are much more complicated than what we have perceived and modeled. Copyright 2000 by WWZ and Helbing & Lichtenhahn Verlag AG

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Kyklos.

Volume (Year): 53 (2000)
Issue (Month): 3 ()
Pages: 293-315

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Handle: RePEc:bla:kyklos:v:53:y:2000:i:3:p:293-315

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  1. Kang Park, 1998. "Distribution and growth: cross-country evidence," Applied Economics, Taylor & Francis Journals, vol. 30(7), pages 943-949.
  2. Persson, T. & Tabellini, G., 1993. "Is Inequality Harmful for Growth," Papers 537, Stockholm - International Economic Studies.
  3. Galor, Oded & Zeira, Joseph, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Wiley Blackwell, vol. 60(1), pages 35-52, January.
  4. Partridge, Mark D, 1997. "Is Inequality Harmful for Growth? Comment," American Economic Review, American Economic Association, vol. 87(5), pages 1019-32, December.
  5. Perotti, Roberto, 1994. "Income distribution and investment," European Economic Review, Elsevier, vol. 38(3-4), pages 827-835, April.
  6. Clarke, George R. G., 1995. "More evidence on income distribution and growth," Journal of Development Economics, Elsevier, vol. 47(2), pages 403-427, August.
  7. Deininger, Klaus & Squire, Lyn, 1998. "New ways of looking at old issues: inequality and growth," Journal of Development Economics, Elsevier, vol. 57(2), pages 259-287.
  8. Perotti, Roberto, 1993. "Political Equilibrium, Income Distribution, and Growth," Review of Economic Studies, Wiley Blackwell, vol. 60(4), pages 755-76, October.
  9. Benhabib, Jess & Spiegel, Mark M., 1994. "The role of human capital in economic development evidence from aggregate cross-country data," Journal of Monetary Economics, Elsevier, vol. 34(2), pages 143-173, October.
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