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Inequality, Poverty, and Growth: Cross-Country Evidence

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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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    Bibliographic Info

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

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    Length: 43
    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;

    This paper has been announced in the following NEP Reports:

    References

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    1. 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.
    2. Rodrik, Dani & Alesina, Alberto, 1994. "Distributive Politics and Economic Growth," Scholarly Articles 4551798, Harvard University Department of Economics.
    3. 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.
    4. 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.
    5. Barro, Robert J, 2000. " Inequality and Growth in a Panel of Countries," Journal of Economic Growth, Springer, vol. 5(1), pages 5-32, March.
    6. 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.
    7. Galor, Oded & Zeira, Joseph, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Wiley Blackwell, vol. 60(1), pages 35-52, January.
    8. Ravallion, Martin, 1997. "Good and bad growth: The human development reports," World Development, Elsevier, vol. 25(5), pages 631-638, May.
    9. 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.
    10. 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.
    11. Stanley Fischer, 1993. "The Role of Macroeconomic Factors in Growth," NBER Working Papers 4565, National Bureau of Economic Research, Inc.
    12. 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.
    13. 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.
    14. Tripathi, Gautam, 2000. "Econometric Methods," Econometric Theory, Cambridge University Press, vol. 16(01), pages 139-142, February.
    15. Clarke, George R. G., 1992. "More evidence on income distribution and growth," Policy Research Working Paper Series 1064, The World Bank.
    16. 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.
    17. Panizza, Ugo, 2002. " Income Inequality and Economic Growth: Evidence from American Data," Journal of Economic Growth, Springer, vol. 7(1), pages 25-41, March.
    18. Keefer, Philip & Knack, Stephen, 2000. "Polarization, politics, and property rights : links between inequality and growth," Policy Research Working Paper Series 2418, The World Bank.
    19. Galor, Oded, 2000. "Income distribution and the process of development," European Economic Review, Elsevier, vol. 44(4-6), pages 706-712, May.
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    Cited by:
    1. Zhou, X. & Li, Kui-Wai, 2011. "Inequality and development: Evidence from semiparametric estimation with panel data," MPRA Paper 36418, University Library of Munich, Germany.
    2. (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.
    3. 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.
    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.

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