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Analyzing the Kuznets Relationship using Nonparametric and Semiparametric Methods

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  • Li, Kui-Wai

Abstract

This paper studies the income inequality and economic development relationship by using unbalanced panel data of OECD and non-OECD countries for the period 1962 - 2003. The nonparametric estimation results show that income inequality in OECD countries are almost on the backside of the inverted-U relationship, while non-OECD countries are approximately on the foreside, except that the relationship in both country groups shows an upturn at a high level of development. Development has an indirect effect on inequality through control variables, but the modes are different in the two country groups. The model specification tests show that the relationship is not necessarily captured by the conventional quadratic function. The cubic and fourth-degree polynomials, respectively, fit the OECD and non-OECD country groups best. The finding is robust regardless whether the specification uses control variables. Development plays a dominant role in mitigating inequality.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 36535.

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Date of creation: Jan 2012
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Handle: RePEc:pra:mprapa:36535

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Keywords: Kuznets inverted-U; Nonparametric and semiparametric models; Unbalanced panel data;

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