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Assesment of the relationship between Inequality and Economic Growth: A panel Data Approach

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Author Info
Araceli Ortega Diaz
Abstract

The relationship between income distribution and economic growth has been found to depend on several factors such as capital markets imperfections, moral hazard, indivisibility in investments, and existence of dual economic characteristics. In recent literature the importance of geography has been emphasized in defining this relationship due to it’s relevance to trade and openness. The current work assesses how income inequality influences growth stimating a reduced form growth equation. Using dynamic panel data analysis for the 32 States of Mexico with both, urban personal income for grouped data and household income from national surveys, it is found that inequality and growth are positively related. When analysing different periods, two different relationships emerge: 1) a negative influence of inequality on growth in a period of low trade policies, and a positive influence in a period more open trade, when urban personal income is considered, and 2) the relationship is reversed when monetary household income is used. To complete the research, we also estimated a structural form equation taking into account the fiscal effects of inequality on growth, finding that the relationship is positive but requires improvement of the explanatory variables involved

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Paper provided by Econometric Society in its series Econometric Society 2004 Latin American Meetings with number 261.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:latm04:261

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Related research
Keywords: Regional Inequality; Growth; Panel Data;

Find related papers by JEL classification:
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data
O15 - Economic Development, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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    Other versions:
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  7. Bénabou, Roland, 1996. "Inequality and Growth," CEPR Discussion Papers 1450, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  8. Lee, Jong-Wha & Barro, Robert J, 2001. "Schooling Quality in a Cross-Section of Countries," Economica, London School of Economics and Political Science, vol. 68(272), pages 465-88, November. [Downloadable!] (restricted)
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  9. Quah, Danny T, 1997. " Empirics for Growth and Distribution: Stratification, Polarization, and Convergence Clubs," Journal of Economic Growth, Springer, vol. 2(1), pages 27-59, March. [Downloadable!] (restricted)
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  14. Dilip Mookherjee & Debraj Ray, 2000. "Persistent Inequality," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-108, Boston University - Department of Economics, revised Oct 2002. [Downloadable!]
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  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 274-98, April. [Downloadable!] (restricted)
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  16. Perotti, Roberto, 1996. " Growth, Income Distribution, and Democracy: What the Data Say," Journal of Economic Growth, Springer, vol. 1(2), pages 149-87, June.
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