IDEAS home Printed from https://ideas.repec.org/p/cdf/wpaper/2023-21.html
   My bibliography  Save this paper

Assessing the Institutions-Innovation Channel within the Inequality-Growth Nexus

Author

Listed:

Abstract

The present paper assesses the interactions between innovation and economic institutions within the context of the inequality-growth nexus. By carrying out fixed effects estimations on a cross-country panel, we find that both institutional quality and innovations improve economic growth at the expense of income equality. We show that the marginal effects of innovations on growth and inequality diminish as institutions increase in quality, and the effects of institutions can be influenced by level of innovations. This indicates that while institutions and innovations can be inequality-inducing, their interactions dampen the effect. Similarly, both variables positively affect growth but their interactions are negative. More importantly, we note a series of transitory interactive effects on growth which show property right protection as the principal growth-enhancing institutions in earlier stages of development, and broader institutional quality in later stages. These results are verified and reinforced by GMM and IV estimations, the latter of which uses judicial independence as an instrument, as well as additional robustness tests.

Suggested Citation

  • Sun, Yang & Easaw, Joshy & Logothetis, Vassilis, 2023. "Assessing the Institutions-Innovation Channel within the Inequality-Growth Nexus," Cardiff Economics Working Papers E2023/21, Cardiff University, Cardiff Business School, Economics Section.
    • Handle: RePEc:cdf:wpaper:2023/21
    as

    Download full text from publisher

    File URL: http://carbsecon.com/wp/E2023_21.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Alberto Alesina & Dani Rodrik, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(2), pages 465-490.
    2. Sarah Voitchovsky, 2005. "Does the Profile of Income Inequality Matter for Economic Growth?," Journal of Economic Growth, Springer, vol. 10(3), pages 273-296, September.
    3. Persson, Torsten & Tabellini, Guido, 1994. "Representative democracy and capital taxation," Journal of Public Economics, Elsevier, vol. 55(1), pages 53-70, September.
    4. Daniel Halter & Manuel Oechslin & Josef Zweimüller, 2014. "Inequality and growth: the neglected time dimension," Journal of Economic Growth, Springer, vol. 19(1), pages 81-104, March.
    5. Antonelli, Cristiano & Gehringer, Agnieszka, 2017. "Technological change, rent and income inequalities: A Schumpeterian approach," Technological Forecasting and Social Change, Elsevier, vol. 115(C), pages 85-98.
    6. Benos, Nikos & Tsiachtsiras, Georgios, 2019. "Innovation and Income Inequality: World Evidence," MPRA Paper 92050, University Library of Munich, Germany.
    7. Antonelli, Cristiano & Gehringer, Agnieszka, 2013. "Innovation and Income Inequality," Department of Economics and Statistics Cognetti de Martiis LEI & BRICK - Laboratory of Economics of Innovation "Franco Momigliano", Bureau of Research in Innovation, Complexity and Knowledge, Collegio 201311, University of Turin.
    8. Alesina, Alberto & Perotti, Roberto, 1996. "Income distribution, political instability, and investment," European Economic Review, Elsevier, vol. 40(6), pages 1203-1228, June.
    9. Ouattara, B. & Standaert, S., 2020. "Property rights revisited," European Journal of Political Economy, Elsevier, vol. 64(C).
    10. Adalgiso Amendola & Joshy Easaw & Antonio Savoia, 2013. "Inequality in developing economies: the role of institutional development," Public Choice, Springer, vol. 155(1), pages 43-60, April.
    11. Brambor, Thomas & Clark, William Roberts & Golder, Matt, 2006. "Understanding Interaction Models: Improving Empirical Analyses," Political Analysis, Cambridge University Press, vol. 14(1), pages 63-82, January.
    12. Amparo Castelló-Climent, 2010. "Inequality and growth in advanced economies: an empirical investigation," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 8(3), pages 293-321, September.
    13. Nicholas Kaldor, 1955. "Alternative Theories of Distribution," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 23(2), pages 83-100.
    14. Philippe Aghion & Ufuk Akcigit & Antonin Bergeaud & Richard Blundell & David Hemous, 2019. "Innovation and Top Income Inequality," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 86(1), pages 1-45.
    15. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-298, April.
    16. Boudreaux, Christopher & Caudill, Steven, 2019. "Entrepreneurship, Institutions, and Economic Growth: Does the Level of Development Matter?," MPRA Paper 94244, University Library of Munich, Germany.
    17. Machado, José A.F. & Santos Silva, J.M.C., 2019. "Quantiles via moments," Journal of Econometrics, Elsevier, vol. 213(1), pages 145-173.
    18. Jakob B. Madsen & Fabrice Murtin, 2017. "British economic growth since 1270: the role of education," Journal of Economic Growth, Springer, vol. 22(3), pages 229-272, September.
    19. Niels Bosma & Jeroen Content & Mark Sanders & Erik Stam, 2018. "Institutions, entrepreneurship, and economic growth in Europe," Small Business Economics, Springer, vol. 51(2), pages 483-499, August.
    20. Banerjee, Abhijit V & Duflo, Esther, 2003. "Inequality and Growth: What Can the Data Say?," Journal of Economic Growth, Springer, vol. 8(3), pages 267-299, September.
    21. Xiaoliang Yang & Patrick Minford & David Meenagh, 2021. "Inequality and Economic Growth in the UK," Open Economies Review, Springer, vol. 32(1), pages 37-69, February.
    22. Ahmed Raza Cheema & Ahmed Raza Cheema, 2012. "Poverty, Income Inequality, and Growth in Pakistan: A Pooled Regression Analysis," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 17(2), pages 137-157, July-Dec.
    23. Chen, Been-Lon, 2003. "An inverted-U relationship between inequality and long-run growth," Economics Letters, Elsevier, vol. 78(2), pages 205-212, February.
    24. Ruiz, Jose L., 2018. "Financial development, institutional investors, and economic growth," International Review of Economics & Finance, Elsevier, vol. 54(C), pages 218-224.
    25. Perotti, Roberto, 1996. "Growth, Income Distribution, and Democracy: What the Data Say," Journal of Economic Growth, Springer, vol. 1(2), pages 149-187, June.
    26. Oechslin, Manuel & Halter, David, 2010. "Inequality and Growth: The Neglected Time Dimension," CEPR Discussion Papers 8033, C.E.P.R. Discussion Papers.
    27. Hall, B.H., 2011. "Innovation and productivity," MERIT Working Papers 2011-028, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    28. Alesina, Alberto & Özler, Sule & Roubini, Nouriel & Swagel, Phillip, 1996. "Political Instability and Economic Growth," Journal of Economic Growth, Springer, vol. 1(2), pages 189-211, June.
    29. Robert Z. Lawrence & Matthew J. Slaughter, 1993. "International Trade and American Wages in the 1980s: Giant Sucking Sound or Small Hiccup?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(2 Microec), pages 161-226.
    30. Abdulahi, Mohamued Elyas & Shu, Yang & Khan, Muhammad Asif, 2019. "Resource rents, economic growth, and the role of institutional quality: A panel threshold analysis," Resources Policy, Elsevier, vol. 61(C), pages 293-303.
    31. David Roodman, 2009. "A Note on the Theme of Too Many Instruments," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(1), pages 135-158, February.
    32. Yoshinori Kurokawa, 2014. "A Survey Of Trade And Wage Inequality: Anomalies, Resolutions And New Trends," Journal of Economic Surveys, Wiley Blackwell, vol. 28(1), pages 169-193, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ademola Obafemi Young, 2019. "Growth Impacts of Income Inequality: Empirical Evidence From Nigeria," Research in World Economy, Research in World Economy, Sciedu Press, vol. 10(3), pages 226-262, December.
    2. Gründler, Klaus & Scheuermeyer, Philipp, 2015. "Income inequality, economic growth, and the effect of redistribution," W.E.P. - Würzburg Economic Papers 95, University of Würzburg, Department of Economics.
    3. Gründler, Klaus & Scheuermeyer, Philipp, 2018. "Growth effects of inequality and redistribution: What are the transmission channels?," Journal of Macroeconomics, Elsevier, vol. 55(C), pages 293-313.
    4. Seher Gülşah Topuz, 2022. "The Relationship Between Income Inequality and Economic Growth: Are Transmission Channels Effective?," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 162(3), pages 1177-1231, August.
    5. Ms. Valerie Cerra & Mr. Ruy Lama & Norman Loayza, 2021. "Links Between Growth, Inequality, and Poverty: A Survey," IMF Working Papers 2021/068, International Monetary Fund.
    6. Neves, Pedro Cunha & Afonso, Óscar & Silva, Sandra Tavares, 2016. "A Meta-Analytic Reassessment of the Effects of Inequality on Growth," World Development, Elsevier, vol. 78(C), pages 386-400.
    7. Devdatta Ray & Mikael Linden, 2018. "Health, inequality and income: a global study using simultaneous model," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 7(1), pages 1-28, December.
    8. Brida, Juan Gabriel & Carrera, Edgar J. Sanchez & Segarra, Verónica, 2020. "Clustering and regime dynamics for economic growth and income inequality," Structural Change and Economic Dynamics, Elsevier, vol. 52(C), pages 99-108.
    9. Florian Dorn, 2016. "On Data and Trends in Income Inequality around the World," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 14(04), pages 54-64, December.
    10. Jakub Bartak & Łukasz Jabłoński, 2020. "Inequality and growth: What comes from the different inequality measures?," Bulletin of Economic Research, Wiley Blackwell, vol. 72(2), pages 185-212, April.
    11. repec:ces:ifodic:v:14:y:2016:i:4:p:19267790 is not listed on IDEAS
    12. Lubimov, I.L. (Любимов, И.Л.), 2016. "Inequality and Growth: Theoretical Aspects of Dependence [Неравенство И Экономический Рост: Теоретические Аспекты Зависимости]," Working Papers 2042, Russian Presidential Academy of National Economy and Public Administration.
    13. Florian Dorn, 2016. "On Data and Trends in Income Inequality around the World," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 14(4), pages 54-64, December.
    14. Blotevogel, Robert & Imamoglu, Eslem & Moriyama, Kenji & Sarr, Babacar, 2022. "Income inequality measures and economic growth channels," Journal of Macroeconomics, Elsevier, vol. 72(C).
    15. Gustavo A. Marrero & Luis Servén, 2022. "Growth, inequality and poverty: a robust relationship?," Empirical Economics, Springer, vol. 63(2), pages 725-791, August.
    16. Andrew Berg & Jonathan D. Ostry & Charalambos G. Tsangarides & Yorbol Yakhshilikov, 2018. "Redistribution, inequality, and growth: new evidence," Journal of Economic Growth, Springer, vol. 23(3), pages 259-305, September.
    17. Shinhye Chang & Rangan Gupta & Stephen M. Miller, 2018. "Causality Between Per Capita Real GDP and Income Inequality in the U.S.: Evidence from a Wavelet Analysis," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 135(1), pages 269-289, January.
    18. Mehmet Balcilar & Rangan Gupta & Wei Ma & Philton Makena, 2021. "Income inequality and economic growth: A re‐examination of theory and evidence," Review of Development Economics, Wiley Blackwell, vol. 25(2), pages 737-757, May.
    19. Roberto Dell'Anno & Adalgiso Amendola, 2015. "Social Exclusion and Economic Growth: An Empirical Investigation in European Economies," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 61(2), pages 274-301, June.
    20. Veronica Amarante, 2014. "Revisiting Inequality and Growth: Evidence for Developing Countries," Growth and Change, Wiley Blackwell, vol. 45(4), pages 571-589, December.
    21. Marrero, Gustavo A. & Rodríguez, Juan G., 2013. "Inequality of opportunity and growth," Journal of Development Economics, Elsevier, vol. 104(C), pages 107-122.

    More about this item

    Keywords

    income inequality; economic growth; institutions; entrepreneurship; innovation.;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cdf:wpaper:2023/21. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Yongdeng Xu (email available below). General contact details of provider: https://edirc.repec.org/data/ecscfuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.