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Inequality, Poverty, and Growth

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  • Garbis Iradian
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    Abstract

    This paper examines the empirical relationship between inequality and growth, and analyzes the impacts of growth, inequality, and government spending on poverty reduction. A new panel dataset has been assembled on inequality and poverty that reduces measurement error and ensures comparability across countries and over time. The empirical results in this paper challenge the belief that income inequality has a negative effect on growth and confirm the validity of the Kuznets curve. Credit market imperfections in low- and medium-income countries are identified as the likely reason for the positive link between inequality and growth over the short-to-medium term. In the long term, inequality may have an adverse impact on growth.

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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=17956
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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/28.

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    Length: 39
    Date of creation: 01 Feb 2005
    Date of revision:
    Handle: RePEc:imf:imfwpa:05/28

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    Related research

    Keywords: Poverty; Economic growth; Government expenditures; per capita income; gini index; real gdp; gdp growth; dependent variable; growth rates; inequality elasticity; growth rate; purchasing power; gini coefficient; link between inequality and growth; human capital accumulation; reducing poverty; impact of inequality; social spending; inequality elasticities; pro-poor growth; distribution of income; unequal societies; absolute poverty lines; effect of inequality on growth; inequality-development relationship; changes in inequality; reduction strategy; gnp; per capita incomes; inequality declines; economic growth rates; poverty reduction strategy; gnp per capita; gdp per capita; poverty change; inequality will; total inequality; inequality values; inequality observations; private consumption; rates of poverty reduction; sustainable economic growth; gdp growth rates; unequal society; measuring income inequality; covariance matrix; poverty reduction policies; human development reports; relative poverty; wealth distribution; capital formation; inequalities in income; increasing income inequality; redistributive policies; welfare levels; inequality coefficient; evolution of inequality; inequality between countries; setting poverty lines; inequality data; inequality independent; distributive politics; per capita income levels; setting poverty; inverted-u relationship; levels of inequality; gdp growth rate; average inequality; pro-poor; non-food needs; poverty threshold;

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    References

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    1. Kristin J. Forbes, 2000. "A Reassessment of the Relationship between Inequality and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 869-887, September.
    2. Galor, Oded & Zeira, Joseph, 1988. "Income Distribution and Macroeconomics," MPRA Paper 51644, University Library of Munich, Germany, revised 01 Sep 1989.
    3. Tripathi, Gautam, 2000. "Econometric Methods," Econometric Theory, Cambridge University Press, vol. 16(01), pages 139-142, February.
    4. Hongyi Li & Lyn Squire & Tao Zhang & Heng-fu Zou, 1999. "A Data Set on Income Distribution," CEMA Working Papers 575, China Economics and Management Academy, Central University of Finance and Economics.
    5. Garbis Iradian, 2003. "Armenia," IMF Working Papers 03/103, International Monetary Fund.
    6. Panizza, Ugo, 2002. " Income Inequality and Economic Growth: Evidence from American Data," Journal of Economic Growth, Springer, vol. 7(1), pages 25-41, March.
    7. Ravallion, Martin, 1997. "Good and bad growth: The human development reports," World Development, Elsevier, vol. 25(5), pages 631-638, May.
    8. Klaus Deininger & Lyn Squire, 1996. "A New Data Set Measuring Income Inequality," CEMA Working Papers 512, China Economics and Management Academy, Central University of Finance and Economics.
    9. Alesina, Alberto & Rodrik, Dani, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 465-90, May.
    10. Hongyi Li & Lyn Squire & Heng-fu Zou, 1998. "Explaining International and Intertemporal Variations in Income Inequality," CEMA Working Papers 73, China Economics and Management Academy, Central University of Finance and Economics.
    11. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    12. Clarke, George R. G., 1992. "More evidence on income distribution and growth," Policy Research Working Paper Series 1064, The World Bank.
    13. Bourguignon, Francois, 1981. "Pareto Superiority of Unegalitarian Equilibria in Stiglitz' Model of Wealth Distribution with Convex Saving Function," Econometrica, Econometric Society, vol. 49(6), pages 1469-75, November.
    14. Keefer, Philip & Knack, Stephen, 2002. " Polarization, Politics and Property Rights: Links between Inequality and Growth," Public Choice, Springer, vol. 111(1-2), pages 127-54, March.
    15. Barro, Robert J, 2000. " Inequality and Growth in a Panel of Countries," Journal of Economic Growth, Springer, vol. 5(1), pages 5-32, March.
    16. Fischer, Stanley, 1993. "The role of macroeconomic factors in growth," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 485-512, December.
    17. Galor, Oded, 2000. "Income distribution and the process of development," European Economic Review, Elsevier, vol. 44(4-6), pages 706-712, May.
    18. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
    19. Anand, Sudhir & Kanbur, S. M. R., 1993. "The Kuznets process and the inequality--development relationship," Journal of Development Economics, Elsevier, vol. 40(1), pages 25-52, February.
    20. Smith, Douglas, 2001. "International evidence on how income inequality and credit market imperfections affect private saving rates," Journal of Development Economics, Elsevier, vol. 64(1), pages 103-127, February.
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    Citations

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    Cited by:
    1. Muhammad Tariq MAJEED, 2010. "Inequality, Trade Openness And Economic Growth In Asia," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 10(2).
    2. Zhou, Xianbo & Li, Kui-Wai, 2011. "Inequality and development: Evidence from semiparametric estimation with panel data," Economics Letters, Elsevier, vol. 113(3), pages 203-207.
    3. (River) Huang, Ho-Chuan & Lin, Shu-Chin & Suen, Yu-Bo & Yeh, Chih-Chuan, 2007. "A quantile inference of the Kuznets hypothesis," Economic Modelling, Elsevier, vol. 24(4), pages 559-570, July.
    4. Lévy, Brigitte, 2007. "The interface between globalization, trade and development: Theoretical issues for international business studies," International Business Review, Elsevier, vol. 16(5), pages 594-612, October.
    5. Clark Don P. & Highfill Jannett & de Oliveira Campino Jonas & Rehman Scheherazade S., 2011. "FDI, Technology Spillovers, Growth, and Income Inequality: A Selective Survey," Global Economy Journal, De Gruyter, vol. 11(2), pages 1-44, July.

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