An empirical investigation of the relationship between inequality and growth

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An empirical investigation of the relationship between inequality and growth

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Patrizio Pagano () (Bank of Italy, Economic Research Department)

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Patrizio Pagano

Abstract

This paper studies the correlation between inequality, measured by the Gini coefficent of incomes, and the growth rate of per capita GDP in a panel of countries between the late 1950s and late 1990s. Inequality Granger causes growth with a negative coefficient, while growth Granger causes inequality with a positive sign. Quantitatively, the former effect appears much larger than the latter. Once I allow for the effect to differ between rich and poor countries interesting differences emerge. While lagged inequality appears positively correlated with growth in the subgroup of rich countries, in poor countries besides a negative and significant effect of lagged inequality on growth there is a negative and significant effect of lagged growth on inequality

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Paper provided by Bank of Italy, Economic Research Department in its series Temi di discussione (Economic working papers) with number 536.

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Date of creation: Dec 2004
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Handle: RePEc:bdi:wptemi:td_536_04

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Find related papers by JEL classification:
O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
D3 - Microeconomics - - Distribution
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data

This paper has been announced in the following NEP Reports:

NEP-ALL-2005-07-03 (All new papers)
NEP-DEV-2005-07-03 (Development)

References listed on IDEAS
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Marchetti, D.J., 1999. "Markup and the Business Cycle: Evidence from Italian Manufacturing Branches," Papers 362, Banca Italia - Servizio di Studi.
Domenica J. Marchetti, 1999. "Markup and the Business Cycle: Evidence from Italian Manufacturing Branches," Temi di discussione (Economic working papers) 362, Bank of Italy, Economic Research Department. [Downloadable!]
Bonaccorsi di Patti, Emilia & Gobbi, Giorgio, 2001. "The changing structure of local credit markets: Are small businesses special?," Journal of Banking & Finance, Elsevier, vol. 25(12), pages 2209-2237, December. [Downloadable!] (restricted)
Piero Cipollone, 2001. "La convergenza dei salari manifatturieri in Europa," Temi di discussione (Economic working papers) 398, Bank of Italy, Economic Research Department. [Downloadable!]

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