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A Reassessment Of The Relationship Between Inequality And Growth: What Human Capital Inequality Data Say?

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Author Info
Amparo Castelló-Climent () (Universidad Carlos III de Madrid)

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Abstract

This paper studies the empirical relationship between inequality and economic growth. It estimates a dynamic panel data model that controls for fixed effects and, therefore, solves the problem of omitted variable bias present in cross-section regressions. Forbes?(2000) results suggest that income inequality and economic growth are positively related when country specific effects are taken into account. This paper shows that this result holds even controlling for education inequality. However, neither the first difference nor the system GMM estimator, which seems to perform better in growth regressions, support a positive association between education inequality and economic growth. On the contrary, an increase in human capital inequality is related to lower subsequent growth rates not only in the long-term across-countries but also in the short-term within a country. In particular, the negative relationship between human capital inequality and growth is mainly due to a discouraging effect on the physical capital investment rates and, in line with the model of De la Croix and Doepke (2003), through a channel that connects inequality an fertility decisions.

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Publisher Info
Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie EC with number 2004-15.

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Length: 33 pages
Date of creation: Jul 2004
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Publication status: Published by Ivie
Handle: RePEc:ivi:wpasec:2004-15

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Keywords: Human capital and income inequality Economic growth Dynamic panel data model.

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